CHAPTER 1 INTRODUCTION TO THE REPORT

1.1 Introduction
This report is an essential part of the MBA Finance degree requirement that is offered by the IM Sciences. It is based on the Eight weeks internship program that the students had to undergo with the major banks in Peshawar region and is required to be submitted to the Research and Development Division (R&DD) IM Sciences.

1.2 Purpose of The Study

The purpose of the study is to experience real life banking practices in order to bridge the gap between the theoretical and the actual for better comprehension and knowledge of the different aspects of this vast field of profession. The main purpose of this report is to critically analyze and comprehend banking operations and suggest measures in the form of concrete and weighted recommendations. Besides, the report also aims to inculcate amongst the students the method of collecting relevant material and shaping it in the form of formal report writing.

1.3 Scope Of The Study

Banking is a very diversified field and has various dimensions and treatments. However, for a meaningful dialogue resulting in a definitive conclusion the study for this report has been confined to banking operations as the objective is to make an acquaintance with the practical aspect of banking.

1.4 Methodology Of Report

The report was prepared using both primary and secondary data that included the following methodological tools: 1.4.1 Primary data Personal observations during the six-month internship program. Discussion with the Bank personnel from time to time. 1.4.2 Secondary Data Journals, newspapers and course books. Brochures and manuals from the Bank branch. Internship reports on UBL available in the IMS library World Wide Web.

1.5 Limitations
The banks hesitation to reveal certain facts and figures apart from major managerial and organizational secrets made it slightly difficult to gain all the information that would have resulted in a report applicable to the organization as a whole alongwith remedial suggestions. The daily busy routine of the employees also allowed for foregoing any queries that cropped up in the mind while undergoing the training within the assigned branches. Although there was enough time yet the space constraint and non availability of resources on the part of the writer to personally visit places of interest and relevance has limited the study to only gather those facts and figures that are significant to the purpose of the study and do not prove the conclusions drawn at the end as incorrect.

Scheme of the Report

CHAPTER 2 INTRODUCTION TO UNITED BANK LIMITED:

2.1 Origin of Banking
Many of todays banking services were first practiced in ancient Lydia, Phoenicia, China, and Greece, where trade and commerce flourished. The temples in Babylonia made loans from their treasuries as early as 2000 BC. The temples of ancient Greece served as safe-deposit vaults for the valuables of worshipers. The Greeks also coined money and developed a system of credit. The Roman Empire had a highly developed banking system, and its bankers accepted deposits of money, made loans, and purchased mortgages. The first bank to offer most of the basic banking functions known today was the Bank of Barcelona in Spain. Founded by merchants in 1401, this bank held deposits, exchanged currency, and carried out lending operations. It also is believed to have introduced the bank check. Three other early banks, each managed by a committee of city officials, were the Bank of Amsterdam (1609), the Bank of Venice (1587), and the Bank of Hamburg (1619). These institutions laid the foundation for modern banks of deposit and transaction.

2.2 Definition and purpose of Banks

Banking is the business of providing financial services to consumers and businesses. The basic services a bank provides are checking accounts, which can be used like money to make payments and purchase goods and services; savings accounts and time deposits that can be used to save money for future use; loans that consumers and businesses can use to purchase goods and services; and basic cash

management services such as check cashing and foreign currency exchange. A broader definition of a bank is Any financial institution that receives, collects, transfers, pays, exchanges, lends, invests, or safeguards money for its customers. Banking services serve two primary purposes. First, by supplying customers with the basic mediums-of-exchange (cash, checking accounts, and credit cards), banks play a key role in the way goods and services are purchased. Without these familiar methods of payment, goods could only be exchanged by barter, which is extremely timeconsuming and inefficient. Second, by accepting money deposits from savers and then lending the money to borrowers, banks encourage the flow of money to productive use and investments. This in turn allows the economy to grow by letting people to purchase cars or houses, and businesses to expand and build the new factories that the economy needs in order to produce more goods and services. Enabling the flow of money from savers to investors is called financial intermediation and this is what banks are established for.

2.3 Banking in Pakistan

The areas constituting Pakistan at the time of its creation were producing only food grains and agricultural raw material for the IndoPak subcontinent. There were practically no industries, and whatever raw material was produced was being exported from Pakistan. There were 487 offices of scheduled banks in the territories now constituting Pakistan.1 It was very difficult for the newly born Pakistan to run its own banking system immediately. Therefore, in accordance with the provision of Indian Independence Act 1947, an Expert Committee was appointed to
1

Siddiqi, A.H.(1998) Practice and Law of Banking in Pakistan, Karachi: Decent Print Enterprises p. 12

study the issue. The Committee recommended that the Reserve Bank of India continue to function in Pakistan until 30th September 1948 and that Pakistan would take over the management of public debt and exchange control from Reserve Bank of India on 1st April, 1948. Following the announcement of Independence Plan in June 1947, the Hindus residing in the territories now comprising Pakistan started transferring their assets to India. Moreover, the banks including those having their registered offices in Pakistan transferred them to India. By 30th June 1948, the number of offices of scheduled banks in Pakistan declined from 487 to only 195. There were 19 non-Indian foreign banks while there were only 2 Pakistani institutions i.e. Habib Bank and the Australasia Bank. The Government then promulgated the Banking Companies Ordinance, 1947, to safeguard the interests of both the bankers and the customers. Governor-General of Pakistan Quaid-e-Azam Muhammad Ali Jinnah inaugurated the State Bank of Pakistan on May 12th, 1948. The Banking Companies (Control) Act was promulgated in 1949, empowering the State Bank to control the operation of Banking Companies in Pakistan. The State Bank sponsored the establishment of Agricultural Development Bank to attend exclusively to agricultural finance. Moreover, the State Bank of Pakistan Act, 1956 also broadened the functions of the State Bank conferring the powers to increase credit facilities for both agriculture and industry. During this period a new Pakistani bank was registered and scheduled as the National Commercial Bank Limited in order to solve the jute export problem in 1949. The expansion in the banking and credit facilities was further enlarged when during 1959-60 two more Pakistani banks, namely Eastern Mercantile Bank limited and the United Bank Limited were established and scheduled.

2.4 Birth of UBL

United Bank Limited is one of the largest financial institutions of Pakistan. The bank was notified and included as a private scheduled bank with an authorized capital of Rs. 20 million on November 7, 1959 by the Sehgal Group of Companies. The initial issued and paid up capital was Rs. 10 million divided in to 1 million shares of Rs. 10 each. Agha Hassan Abidi was its first president. The financial results of the earlier years show that the bank got off on a flying start and was set to cross all the previous records of growth in the banking history of Pakistan. UBL was highly appreciated by its clients for its services, and it grew so rapidly that it became the second largest bank of Pakistan in 1977. Although it has been privatised again after being nationalized in 1973 the banks operations and management is running on the same rules and policies as in the pre privatised era. Mr. Amar Zafar Khan who is the President manages the bank affairs, His Highness Sheikh Nahayan Mubarak Al Nahyan who is the Chairman and Mr. Anwar Muhammad Parvez, the Deputy Chairman control it.2

2.5 Branches and Subsidiaries:

UBL has a global network of more than 1100 branches nationwide and worldwide that ensures easy accessibility to the wide range of products and services offered to its clients. The first foreign branch was established in London in 1963. it has a network of three branches in Bahrain, one in Qatar, eight in United Arab Emirates, two in Yemen Arab Republic, one in New York, one joint venture in United Kingdom and a subsidiary in Switzerland, two branches in Oman (joint venture),. The bank is also in the process of establishing more than 200 online branches in 71 cities which would help in accessing the customers accounts from anywhere across the country. Besides, it is also establishing above 350 counters at post offices all over Pakistan for the convenience of the general public.
2

S. Hamid Ali Shah, (2003), Internship Report on UBL Main Branch Peshawar, IMS: Peshawar. P. 9

UBL has four subsidiaries namely3 United National Bank Limited (UNB), UK United Bank AG (Zurich), Switzerland United Executers and Trustees Company Limited, which has its own subsidiary the United Asset Management Company Limited. United Bank Financial Services (Private) Limited

2.6 Role of United Bank Limited in Banking Sector

UBL became one of the most progressive and dynamic banks in a very short time and overtook several other well-established competitor banks. It out-performed all the Pakistani Banks in that it attained these distinctions in relatively very small period. UBL became a 50 Billion Bank on its 27th year of inception, the shortest period taken by a Bank to reach to such position.4 2.6.1 Record Performance in Early Years of its Inception United Bank Limited made its presence felt in the market even in the presence of tough competition from the major banks and established business relationship and a substantial market share in the very early years of its existence. As early as 1977, it became the second largest bank of Pakistan 2.6.2 Dynamic and Advanced Approach The Bank employed skilled and professional approach to management, which took a series of successive measures to make the people of Pakistan banking, and saving-minded. Activities such as development
3 4

UBL, (2002), Annual Report, Karachi M. Iqbal Khan, (2002). Internship Report on UBL, Nowshera Cantt. Branch. IMS: Peshawar p.15

of personalized relationships with the business community, fixation of seasonal business targets especially for deposits and advances and follow-ups to achieve them attained UBL its prominence amongst so many other banks. Flexibility, delegation of authority to the lowest level possible, and encouragement of initiative have been the key factors, which have helped the bank achieve its goals. This dynamic approach and personalized service met the expectations of the customers. 2.6.3 Customer Orientation and Personalized Service The banker customer relationship attained a new dimension courtesy the politeness and efficiency of professionally trained staff and fair induction policies of its Human Resource Department. Convenience of the customers has been the sole criterion of this relationship. The introduction of different schemes, good atmosphere, proper guidance and team effort have proven to be the catalyst in not only improving the financial standing of the bank but has also been the source of the prestige it holds today. 2.6.4 Professional Style of Management Although the concept of professional management is still in its transition stage in Pakistan United Bank from the very first day employed skilled and professional management, which had the capacity to take quick decisions, and respond to the changing business conditions. 2.6.5 Healthy, Competitive Working Environment The obligation to give all its employees an equal chance to succeed has been one of the most fundamental and challenging responsibilities of the bank. It has always provided its employees the scope within which

to make the most of their abilities. In United Bank survival, growth and expansion demand full use of ones own talent and ability. Such a competitive environment was instrumental in introducing professionalism, which in the ultimate analysis transformed the entire outlook of the industry. 2.6.6 Modern Banking Policies With the entry of United Bank Limited and a new era, banking underwent a complete metamorphosis. When United Bank challenged the major banks of the time due to quality services they began to evaluate their policies and were surprised to find that they had a lot to change. Before long, they began to change and adopt a more modern and relevant strategy. The period following the entry of UBL witnessed aggressive deposit mobilization campaigns, aggressive lending to industrial and commercial sector and offering of other agency related functions by the banks. 2. 6.7 Quantitative Dimension Of Growth UBL has an impressive record of progress in all areas of operations, growth in assets, deposit mobilization, advances, operations, profit etc. 2.6.7.1 High Growth in Assets Growth in the assets of United Bank has been more pronounced than the growth in the assets of the other commercial banks taken together. The total assets grew from Rs. 104 million at the end of June 1960 to Rs. 84.171 million at the end of December 1988 and then Rs. 161820.198 million in the year 2000, Rs. 168623.155 million in 2001 and now are at Rs. 191821.032 million in 2002. Last year showed an increase of 3.61% over 2001 in the total assets figure.

2.6.7.2 Paid Up Capital And Reserves The Bank was floated as a scheduled bank with a paid-up capital of Rs. 10 million. The capital structure of the Bank expanded quite rapidly. The present paid-up capital of the Bank is Rs. 5180.000 million and the reserves amount to a total of Rs. 4258.947 million as compared to Rs. Rs. 1.482 million and Rs. 1.440 million respectively in 1988. 2.6.7.3 Advances Along with the rapid increase in the Banks resources, its ability to lend and invest funds has also improved continuously over the years.
5

The Banks total advances including bills purchased and discounted,

amounted to only Rs. 33.2 million at the end of June 1960, with the spectacular growth in deposits as experienced in the pre September 11 scenario and then increase in the amount of home remittances to an annual sum of Rs. 11 billion resulting in heavy market liquidity advances rose to Rs. 75794.973 million. 2.6.7.4 Profit United Bank has shown remarkable growth in profits. Pre-tax profit of the Bank was Rs. 0.7 million in 1960. Since then, it has been rising consistently. In 1970 and 1971 United Bank declared the highest profit amongst all commercial banks. This was quite an encouraging performance for a new bank. Its profits reached Rs. 247.000 million at the end of December 1988 and Rs. 2781.000 million in 2002. 2.6.7.5 Branch Expansion Soon after commencing business, by the end of June 1960, eight branches had been opened. The management decided to expand the branch network for extended coverage. Hence, besides the cities, the Bank branched out into small towns and the far-flung less developed
5

Mr. Lutfur Rahman, Relationship Manager Advances, UBL Cantt. Branch Peshawar

areas to fulfil its social responsibility. The branches in small towns and villages have been of vital help to the small industrialists and businessmen, industrial workers, farmers, craftsmen and other persons of limited means. The bank had extended its network to 916 by the end of December 1973. At present, the number of branches is more than 1100. 2.6.8 In International Trade The Bank has always played a vital role in the promotion of foreign trade, especially in financing of exports. Foreign trade business handled by the Bank has increased. The Banks achievement in this area is commendable, as it has not only to compete with the domestic banks but with the large international agencies also. United Bank provides World Bank foreign currency loan facility to a wide range of private industries, including a number of new units and some BMR (Balancing, Modernization and Replacement) and expansion projects. The Bank has successfully utilized the facility to its maximum extent. 2.6.9 UBL and technological advancement United Bank (UBL) has agreed to be the financial advisor, lead underwriter and lead arranger for WorldCALL Broadband Ltd (WBL) for Rs.1.5 billion equity issue. It has been a strategic partner of WorldCALL Group in its progress. UBL's Investment Banking, the largest in Pakistan, has established a strong track record of successfully and creatively providing a wide range of products and services encompassing corporate advisory and restructuring, structured finance, syndication, TFCs, mergers and acquisitions, equity placements, etc. One of Pakistans premier banking institutions UBL has always been on the forefront of developing new systems and technologies. UBL currently has the largest deployment of Oracle database under Linux. It plans to use the Oracle General Ledger component of Oracle

Financials to prepare Monthly Performance Reports and consolidated balance sheet on global basis.6 UBL is the only bank in its class that has a centralized database that captures information of its 1100 branches in Pakistan and overnight basis. 2.6.10 Human Resource Development United Bank has always been conscious of the importance of manpower development for the growth of the Bank. To meet this challenge, the Bank currently has four staff colleges, in Karachi, Lahore, Peshawar and Quetta. The Training and Management Development Division manage the training activity of the Bank. The first Staff College was established at Karachi in 1964. After the nationalization of banks, management decided to set up three more training institutions, one each at Lahore, Peshawar and Quetta. These colleges are playing a significant role in developing the requisite expertise in the field of banking. 2.6.11 Small loans towards SMEs United Bank has always been aware of its responsibility to invest in the long-term progress of all the segments of the society. United Bank alive to the situation and introduced Small Loans Scheme for small business and industry and agriculture. Another scheme was introduced for financing low cost housing. The Bank also launched the Farmers Supervised Credit Scheme in May 1978 and in 1979. It implemented the scheme for providing interest-free loans to farmers holding land up to 12.5 acres. Moreover, the Bank provided loans for promoting growth in remote and underdeveloped areas. Under another scheme, it also participated in the Qarz-e-Hasana (interest free loan) provided to the students to enables them is completing their studies.7

6 7

http:// www.ubl.com.pk UBL, (2000). Credit Manual, Karachi

2.6.12 United Money-Market Fund United Asset Management Company Limited is an Asset Management and Investment Advisory Company formed under the Asset Management Companies Rules, 1995. UAMCL is a wholly owned subsidiary of United Executors & Trustees Ltd (UET), which in turn is a wholly owned subsidiary of United Bank Limited (UBL). UAMCL is authorized by the Securities and Exchange Commission of Pakistan to constitute a trust under the name and title of United Money-Market Fund (UMF). UAMCL leverages UBL's 40 years experience in money market, corporate debt market and equities market. UBL's Treasury portfolio is currently over Rs. 50 billion and earned an income of Rs. 1.8 billion during the last year. Coupled with the reputation and financial muscle of UBL, UAMCL has set up a team of professionals with extensive international and domestic experience of asset management, equities, fixed income trading, corporate finance and product development. UAMCL is responsible for promoting sale of units of UMF and investing and managing the assets of UMF prudently and in accordance with the provisions of the Trust Deed. UMF believes that idle cash means lost revenue. Corporate cash balances should be invested in a way that maximizes return given a company's liquidity needs and risk tolerance. Given a scenario of decreasing interest rates on time deposits and fluctuating economic conditions, maximizing returns on liquid funds is becoming a greater challenge everyday In the face of a dearth of investment alternatives, UMF provides the investors the comfort of knowing that their risk is not only well diversified but that they have the added convenience of converting their units back into cash within three business days.8

2.7 Objectives of UBL

Objective is the mean toward which an activity is aimed. All the activities of an organization are due to its objectives and goals and it is
8

UBL, (2002). UMMF Brochure, Karachi

for the attainment of these objectives that various strategies, products and services are devised. UBL has the following objectives To pay special attention to the underdeveloped areas. To develop SMEs. To increase industrialization in the country. To provide financial help to the farmers. To provide employment opportunities. To make people more of mind to have savings habits. To increase wealth of stockholders and see the bank earning profits. To ensure growth and development of the bank. To use resources of the bank efficiently and effectively. To increase the deposit base of the bank. To participate in the development of the country.

2.8 Functions of UBL

Like other banks, UBL is also performing all those functions that are expected of any reputable commercial bank. To achieve its objectives of participating in the development of Pakistan and its economy, efficient and effective use of the banks resources to ensure its sustainable growth and earn profits for the shareholders and itself, UBL performs various functions.

2.8.1 To Accept Deposits Deposits are the life blood of a bank as it largely depends on them for earning profits by advancing the deposited amounts of its customers. These are of several kinds ad at UBL they are as follows 2.8.1.1 Current Deposits Current deposits are the demand liability of a bank. Businessmen usually open these and the bank does not pay much interest on them. Hence, they are also termed as non- profitable demand accounts that can be opened with a minimum balance of Rs. 5000/-. 2.8.1.2 PLS- Saving Deposits These are also called the checking accounts because the depositor can withdraw money by way of checks and deposit amounts while filling in the pay in slips. Profit on these is calculated on monthly basis but is paid every six months after declaring the profit rate. The basic feature of this kind of account is the idea of sharing profit and losses as per the Islamic teachings and non-interest based banking. This is opened with a balance of Rs. 10,000/-. 2.8.1.3 PLS- Term Deposits These are also called Fixed Deposits and can be withdrawn by the customers after a stipulated period of time. Profit is paid to the depositor depending on the duration for which the amount is kept with the bank. 2.8.2 To make Advances The money taken from the customers in the form of deposits is utilized by the bank in the form of advances and credits given to corporate and

retail customers depending on their eligibility. Thus, by doing so the bank performs an intermediary function by acting as a bridge between those who need funds for specific purposes and those who have surpluses. The credit facilities given by the bank are of two kinds fund based and non-fund based. The first includes short, medium and longterm loans and the second type letters of credit and guarantees. 9 2.8.3 Agency Services UBL provides agency services to its customers besides the customary deposit and advances function. These include Collection of cheques, bills and promissory notes. Clearance of utility bills such as electricity, gas and telephone for its customers and general public as well. Cheque encashment facility for those customers who have their accounts maintained at designated branches and who do not wish to carry cash with them while travelling. Self service banking facilities in the form of Unicash cards that can be used in the ATMs. Hajj and Umrah services by setting up special Hajj counters and helping the customers fulfil the documentation formalities in assisting them in filling up the forms. UniRemote System designed to perform transactions between any two UBL Branches over WAN (Wide Area Network) with the assurance that the information will be secured by taking security measures is the system between branches where they can make online transactions with each other on behalf of UBL customer.
9

IBP Journal, (1998). Economic Roundup, Karachi: Yaqeen Art Press

UBL provides locker facilities to its customers where they can safely keep their valuables after making payments depending on the size required by them. In short, UBL has cash points; exchanges foreign currency and issues travellers' cheques; provides night safes and stores valuables; executes (carry out) wills and trusts; and factors (collect) debts.

Senior management levels in UBL

Sheikh Nahayan Mubarak Nahayan

Chairman

Sir Muhammad Anwar Pervez

Deputy Chairman

Amar Zafar Khan

President

M. A. Mannan

Deputy CEO

Nauman Hussain

Risha Moheyuddin

Director Operations and Utilities

Mansoor M. Khan

Global Treasurer

Head Corporate Banking Group

Shaharyar Ahmed

Khalid Munawar ud din

Head Credit Policy Supervision

Muhammad Ejazuddin

Head Investment Banking Group

Audit Chief
Mehboob A. Khan

Shahid Waqar Mehmood

Head Commercial Bank

Country Operations Head

Aman Aziz Siddiqui

Rukhsana Asghar

Head International Operations

Dubai

Global Head Human Resources

Ali Sameer

Ameer Karachiwala

Chief Special Asset Management

Chief Financial Officer/ HCA

Source: UBL (2002), Annual Report, Karachi

Functional/ Organizational Hierarchy of UBL

Chairman Deputy Chairman

Board of Directors

Executive Committee

Managing Director

Senior Executive Vice President Executive Vice President

Senior Vice President

Vice President

Assistant Vice President

Officer Grade I

Non-Clerical Staff

Clerical staff

Officer Grade II

Officer Grade III

Source: UBL (2002), Annual Report, Karachi

CHAPTER 3 DEPOSITS DEPARTMENT

Commercial banks are for profit organizations. Their objective is to make a profit. One of the main functions of a bank is to accept deposits as the size and type of a banks deposit base greatly affect its operations and hence profitability. Deposits provide the raw material i.e. inputs for a bank and hence UBL accepts three main kinds of deposit accounts that are further classified into various types in order to cater to the different groups of people from all spheres of life.

3.1 Functions of the Deposits Department

The Deposits Department of UBL, Peshawar Cantt. Branch performs the following functions Opening of Account Closing of Account Notification to customers in case the account becomes dormant Issuance of Cheque books

3.2 Types of Accounts offered

UBL offers the following kinds of accounts to its customers 3.2.1 Current Accounts A current account is that which provides a Chequebook but usually pays no interest. Current accounts are mainly used to pay bills or other financial obligations of businesses that may arise from time to time. UBL offers two kinds of Current Accounts 3.2.1.1 Unisaver This account can be opened with a minimum amount of Rs. 100,000/-. This is also the minimum balance that is required to be maintained in the account by the customer otherwise certain predetermined charges would have to be recovered from him. Although it is a Current account, yet profit is calculated on daily product basis and paid semi annually. UBL claims to allow maximum flexibility by way of withdrawals and give optimal returns through this Account.

3.2.1.2 UBL Business Partner UBL Business Partner is a current checking account that especially caters to the needs of a businessman by offering the convenience and accessibility of online banking across the country. Services like cash withdrawal, payment, deposit, stop payment and acquisition of account statement can be conveniently availed from any of the banks online branches across the country. The customer can operate this account from 0900hrs PST till 1700hrs PST, get cheques cleared instantly and transfer funds within minutes. 3.2.2 PLS- Saving Accounts This account is intended to encourage savings among people and can be opened either in Pak Rupees or a few other major currencies of the world. These accounts can be opened in the name of Individuals, Joint name, Trust Accounts, Charitable organizations and Associations. Currently the bank offers 2% to 4% return on these accounts. Zakat is applicable on PLS-Saving Account, unlike the Unisaver and UBL Business Partner Accounts. However, if a customer wishes not to let deduction of Zakat by the bank he sends in an application. A minor can open this account but his guardian operates it. PLS Savings Account can be opened with an initial deposit of Rs. 500/- but the minimum monthly balance should not fall below Rs. 10,000/- otherwise certain incidental charges would be deducted from the account. The Account holders share of profit is credited half-yearly and is calculated on monthly balance. In case of the balance falling below the minimum limit the profit that is earned is credited to the account and then penalty is charged from the customer afterwards provided he is notified of this condition at the time of account opening.10 3.2.3 Term Deposits
10

UBL, (2000). Deposit Manual, Karachi

Term Deposits are also called Fixed Deposits and are withdrawable after a specified period of time. Profit is accrued to the account every six months. UBL offers a wide range of attractive term deposit schemes to suit its customers requirements. The deposit period starts from 7 to 29 days and goes up to 5 years, which is to be clearly stipulated at the time of account opening. Corporate customers, besides normal current accounts, are also offered special current deposit accounts to cater to their specific requirements at very attractive profit and terms. 3.2.4 Unizar Plus This is a highly lucrative foreign currency account that can be opened in US Dollars, Pound Sterling or Euros. Customers can maintain current, saving or term deposit accounts in foreign currency by way of Unizar. A resident, non-resident Pakistani, firms and companies are eligible to open it. This Account is exempt from Zakat. Withdrawals and deposits are allowed in foreign currency in which the account was opened or in some other currency other than Pak Rupees also. 3.2.5 Special Term Deposit Receipt (STDR) These bear attractive rate of return to the depositors and are issued for a period ranging from one month to five years. Upon maturity the customer surrenders the original receipt and payment including the principal and profit that is calculated at the time is made. 3.2.6 Notice Term Deposit Receipt (NTDR) These are Term Deposits offered by UBL with the feature that they can be withdrawn anytime but after giving a notice of predetermined period.

3.3 Opening of an Account

The first step towards the banker customer relationship is the opening of a customers account. Special care should be taken in opening accounts of new customers. According to Prudential Regulation Number XI Banks should make all reasonable efforts in determining the true identity of every prospective account holder so that criminal use of banking channels is prevented for the use of money laundering and other unlawful trades. This is the first contract between a banker and the customer and demands that the customer be vigilant and draws the cheques within his credit balances as he as a right cannot press the banker to accommodate him for his financial requirements. 3.3.1 Procedure The officers of the bank open an account at the request of a customer. When a customer visits the UBL Cantt. Branch he is asked for two references, the persons to contact in case of any intimation that is required to be given to the customer or make certain queries about him. Next, he is asked who is introducing him to UBL as a customer. The introducer must be an account holder of the bank or an official of the bank with his signatures present in the signature verification book. After the initial formalities, he is asked to fill the form in the officers presence. The Account opening form is to be filled in duplicate as per the new instructions of the State Bank of Pakistan and one copy is to be retained by the customer. It includes The name of the account opener alongwith his fathers in block letters. His occupational information i.e. whether he is salaried or self employed. In case he is serving somewhere the name of his organization otherwise the name and nature of his business.

Complete postal/ mailing address is required to be filled in the form.

For special and standing instructions, there are specified sections that need to be filled in by the customer if he so desires.

In case of a current account opened in the name of a business the customer is asked to bring in an application on the letter pad of his business otherwise he is asked to request for opening of an account with the business stamp affixed on it. 3.3.2 Photocopy of National Identity Card A copy of the customers original identity card must be attached to the account opening form and the original shown to the officer. 3.3.3 Specimen Signature Cards The signatures of the customer are taken in three places on the Signature Specimen Card in order to tally them later at the time when cheques are presented for payment. This prevents fraudulent activity in case of any carelessness on the part of the account holder. 3.3.4 Cheque Book Requisition Slip In order to operate a current and savings account a cheque book is required that is issued by the concerned officer the requisition slip is filled in and the number of leaflets that the customer feels he would need is mentioned. Either he pays cash for the cheque book or the amount is recovered by debiting his account. 3.3.5 Withdrawals

The account holder makes withdrawals after he presents cheques and other payment instruments signed exactly in the fashion on the specimen card up to the limit of the credit balance in his account. Foreign currency account cannot be withdrawn in case of insufficient foreign currency notes supply with the bank at the time of presentation of cheques.

3.4 Stop Payment of a Cheque

The branch officials do not pay cheques in case the Drawer issues a stop payment order in writing. The date, time ad cheque number is noted down n the stop payment register and the cheque if presented is returned with clause Payment stopped by the Drawer on a return memo.

3.5 Return of Cheque by the Bank

The branch at times returns cheques to the customer unpaid with the reasons stated on the cheque return memo. Following are some of the reasons for returning of a cheque Difference between the amount in figures and words Drawers full signatures not present, differ from those given in the SS card Payment stopped by the drawer The cheque is post dated, stale, without date, mutilated and requires the banks guarantee Unauthenticated material alteration is present on the cheque

Payees endorsement is required or is irregular Not sufficient funds in the account and hence the cheque is returned with the stamp Refer to Drawer instead of Not sufficient funds in order to protect the customers credit in the market.

3.6 Deposits into the Account

Cash or cheques payable to the account holder are credited to the account after filling in the paying in slip. Particulars of drafts, cheques or other instruments are mentioned in the slip and the bank collects the amount if in case drawn on some other bank at the depositors own risk.

3.7 Documents required for opening a Business Account

Account opening form, ID card of the owner/s, Signature specimen card, and cheque requisition form alongwith a sole proprietorship declaration certificate for a single owner entity. Besides the above mentioned, the following documents are also required for a joint stock company and a partnership firm For a Company, the Board of Directors Resolution, list of all the Directors, Certificate of Incorporation, Certificate of Commencement of business (in case of Public Limited Company), Memorandum and Articles of Association.11 For a Partnership firm, a partnership deed, joint and several liability clause, operational and survivorship mandate, besides a registration certificate in case the firm intends to borrow in the future is required.

11

UBL, (2000). Credit Manual. Karachi

CHAPTER 4 REMITTANCES DEPARTMENT

The pace at which the world is gearing itself to globalization is reason enough for swift movement of funds from one region to another in order to avoid waste by making transactions easy and convenient between distant places. UBL has not been behind in introducing the latest technology that aims at faster service of funds transfer to its clients. UBL, Peshawar Cantt. Branch Remittances Department performs the following functions

4.1 Telegraphic Transfer

Telegraphic Transfer is a message transmitted via telegraph, fax or telephone after the customer fills in and signs the application form for transferring funds from one place to another. The bank receives the amount to be transferred, charges commission and withholding tax in accordance to the amount as per the schedule of charges. The customer is given the receipt and the TT officer sends coded instructions in the

form of test numbers to the drawee branch telegraphically. The code is decoded at the drawee branch and payment made to the beneficiary at the time of presentation. The amount of TTs issued in a day are posted in the Branchs online software system by the related officers and then verified by the supervising officers to balance the accounts in which transactions occurred in the day. No excise duty is charged from the customer. 4.1.1 Procedure for issuing a Telegraphic Transfer The remitter fills in the Telegraphic Transfer Application form that is scrutinized for the following points The full name of payee along with his address and /or account number The amount in words and figures should tally UBLs branch should be present in the payees city/ area Signatures of the remitter/ purchaser should be present in their respective box on the form. 4.1.2 In case of loss of Telegraphic Transfer Receipt In case the payee loses a TT Receipt he will have to Report it in writing to UBL Cantt. Branch, Peshawar and sign an Indemnity Bond on the banks prescribed Performa after which he will be issued a duplicate TT Receipt and the original one deemed as cancelled provided it has been ascertained that the original TT Receipt has not been paid.

4.2 Mail Transfer

When the funds are not required to be transferred urgently, they can also be sent through Mail transfers. Here, UBL sends written instructions via mail to the paying bank for payment of a specified amount of money. The transfer is completed after debiting the buyer/ applicants account at the selling branch and crediting the recipients account at the paying branch upon receiving the mailed instructions. The transaction is posted in the Telegraphic transfer section of the UniBank software of the bank. The entry made is then supervised by the supervising officer for reconciliation the accounts. No excise duty is charged on Mail Transfers.

4.2.1 Procedure for Issuing of Mail Transfer The Purchaser fills in the standard application form used for the Telegraphic transfer. The name and address of the Recipient must be written in the form The amount in words and figures should tally The total cost to be borne by the purchaser/ remitter after adding the commission and postal charges is mentioned on the form

4.3 Demand Draft

It is an order to pay money drawn by one branch of a bank upon another branch of the same bank or with an arrangement by one bank with another for a specified sum of money payable to order or on demand. It is more or less like a cheque.

4.3.1 Procedure for Issuing a Demand draft The application form is filled in the beneficiary name, account number and the senders name. The customer deposits the amount of the DD in the branch and after being made, it is given to the customer. 4.3.2 Treatment of Account before and at the time of Payment The transaction is recorded in the DD Issuance section of the UniBank Software system. The Head Office Account is credited and the cash/ customers account debited. The DD Advice (Inward Bill for Collection Advice) is sent to the responding branch where it is recorded in the same way as in the issuing branch but in its own name as it is drawn on it. When the DD comes in for collection the DD Payable account is credited and the Head Office Account of the Originating Branch is debited. On receipt the DD is checked and verified and the payees identity is confirmed through his National ID card before payment is made in case it is an Open DD. The DD Payable is debited and cash party account is credited. If it is received in clearing, all endorsements are checked ensuring that the bank presenting the instrument certifies credit to the payees account. 4.3.3 In case of loss of Demand Draft Receipt In case a Demand Draft issued by the UBL Cantt. Branch Peshawar is lost by the payee and he contacts any of the UBL Branches a telegraphic intimation is sent to the drawee branch upon the written request made by him followed by a confirmatory letter. Caution will be marked in the books of the drawee branch so that it is on guard well in advance. The payee must contact the purchaser of the Draft so that the loss of the draft is also registered at UBL, Cantt. Branch Peshawar.

The Cantt. Branch ascertains from the drawee branch that the draft has not been paid so that a duplicate one is issued in lieu of the original after signing an Indemnity Bond. In case the draft is lost by the purchaser himself, UBL Cantt. Branch is informed in writing and it examines the request letter very carefully to check for the genuineness of the same after comparing the signatures on the request letter and those on the DD Application form. It will then advise the drawee branch to mark caution in their books and inform them of a duplicate being issued in lieu of the lost one.12

4.4 Pay Order

A pay order is a bankers cheque favouring a named beneficiary. It is made for local transfer of money. The issuing bank is discharged by payment in due course. Pay order applications are stamped and customers account balance checked or cash received for the amount and other charges. A pay order leaf is typed and crossed if required. After signing by two authorized signatories, it is delivered to the customer. It can be cancelled at the original purchasers request in writing.

4.5 Rupee Travellers Cheques

These are issued to applicants without any excise duty or commission. The Head Office Account is credited upon issuing the RTCs and the same debited when they are encashed. These are the safest way of carrying cash when travelling anywhere in Pakistan. 4.5.1 Hamrah

12

M. M. Malik (1986), Practice and Law of Banking, Karachi: The Institute of Bankers.

UBL was the pioneer in introducing Rupee Travellers Cheque facility in Pakistan as early as 1971. In continuation of the same tradition, UBL in the shape of Hamrah Rupee Travellers Cheque enhances this facility for the convenience of its valued customers by offering denominations up to Rs. 10,000. Holding an account with UBL is not mandatory for availing this facility and these are valid till encashed. These are easily transferable and encashable at any of the large network of designated UBL Branches, countrywide through a single signature.

CHAPTER 5 CASH DEPARTMENT

Banks receive cash from their customers in the form of deposits and invest it in other profitable businesses. Therefore, it is considered as inventory and requires efficient management. At UBL Cantt. Branch the following activities are noted in the Cash Department

5.1 The Cash Counter

The cash counter is occupied by two cashiers that pay and receive cash from the customers after carefully checking the instruments presented for payment and cash presented for depositing or paying off utility bills. Besides, there are two officers responsible for issuing RTCs, DDs, TTs, MTs, Pay Orders etc. and a senior Grade I officer who supervises the transactions and gives necessary advice in case of any doubtful activity.

5.2 Receipt and Payment of Cash

The senior officer maintains with himself a Cash Received Stamp that is affixed on the paying in slip after the cashier signs it. Cash or any other instrument presented for depositing in the customers or a beneficiarys account is accepted and the account credited only after the paying in slip has been signed and countersigned by the officer. The cheque is posted, supervised and cancelled by the authorized officers before the cashier pays cash to the presenter of the instrument.

5.3 Collection of Utility Bills and Issuing PTV licenses

The Cash Department collects the bills of Sui Northern Gas Pipelines Limited, Pakistan Telecommunications Limited, and Peshawar Electric Supply Corporation Limited. Besides cash, UBL also accepts cheques for payment of utility bills. UBL is one of the main collecting agents of PTV collection against issuance of licenses/renewal of licenses at its authorized branches all over the country and this responsibility is entrusted with the Cash Department at UBL Cantt. Branch Peshawar.

5.4 Counting Cash

The authorized officer checks and counts cash in the afternoon after the transactions by the customers have been closed for the day. The number of stitched bundles and sealed bags containing coins are properly checked and the results tallied with the recorded balance in the cash register.

CHAPTER 6 BILLS AND CLEARING DEPARTMENTS

6.1 Bills Department
The settlement of trade transactions through financial instruments has resulted in the importance of Bills Department that performs an entirely agency function for the banks. Instruments drawn and payable

in Pakistan against which the proceeds are to be collected from outstation banks/ branches are dealt by the this department. Bills are of two kinds inland, drawn and payable in Pakistan and foreign, drawn and payable abroad. Bills supported by auxiliary documents are called documentary bills and those not accompanied by any are clean.

6.2 Collection of Clean Bills

6.2.1 Collecting Branch The customer fills in a paying in slip just as he would for depositing cash in his account. The slip should include the instrument number that has to be collected. The cheque must be generally crossed and after thorough scrutiny UBL, Cantt. Branch Peshawars special crossing is placed on its face and a realization stamp on the rear; the paying in slip is stamped as received for collection and signed. A counter foil of the slip is handed over to the customer and after applying an OBC and discharge stamp an entry made into the OBC spread sheet in MSExcel by the officer. The instrument is forwarded to the branch on which it is drawn. If a profit-bearing instrument such as Term Deposit Receipt or a Defence Saving Certificate comes in collection it is sent to the issuing office and proceeds realized in the form of cheques drawn on SBP/ NBP. At the time, Outward Bills Lodged is debited and Outward Bills for Collection is credited. 6.2.2 Drawee Branch The Outward Bill for Collection of the collecting branch becomes an inward Bill for Collection for the Drawee Branch. Here, the Inward Bill Lodged is debited and Inward Bill for Collection is credited. Upon receiving the instrument, it is sent for clearing to the clearing house. If it is honoured, the Bills Department of the Drawee Branch is informed to intimate the collecting bank/ branch and one of the computer

generated IBCA is prepared and dispatched to it and the other to the Head Office. The initial IBC lodgement entry is reversed. 6.2.3 Collecting Branch The realizations signatures are verified and in the case of TT the test number is tallied and agreed with upon receipt of the IBCA from the drawee branch. A credit advice is sent to the customer for intimation and Head Office Account of the Drawer Branch is debited, whereas, the Customer Account, Income Account Commission on Bill and the Income Account Courier Charges is credited.

6.3 Collection of Documentary Bills

Traders selling their goods deposit documents of title to goods and bills of exchange to bankers for collection. At times, the need arises to settle trade transactions in this manner because the instrument used to make payments to the seller is drawn on some other outstation branches/ banks. Documents of title to goods are negotiable and receipts of Career Company against surrender of which delivery of goods is made to the buyer and payment affected to the seller. 6.3.1 Collecting Branch On receiving the documents by the bank and filling in the paying in slip by the customer the branch officer notes the following points The documents of title to goods are endorsed in favour of UBL Amount of bill of exchange is the same as on the invoice A duly signed and completed bill of exchange The maker has signed the paying in slip

The Outward Documentary Bill for Lodgement is debited and the Outward Documentary Bill for Collection is credited. 6.3.2 Drawee Branch The drawer of bill (buyer) is intimated and the documents are released either against payment or acceptance. In case of release upon payment, the Cash/ Party Account is debited and the Head Office Account of the Collecting Branch is credited. In case the bill of exchange is accepted it is either sent back to the Collecting Branch or retained according to the instructions received. If retained, the date of acceptance and due date is communicated to the Collecting Branch and particulars entered in the due date and safe in/ safe out register maintained on the officers computer. 6.3.3 Collecting Branch At the Collecting Branch upon receipt of the IDBC, the test number is checked to see if it agrees with that of the Test Officer and verified. The HO Account of the collecting Branch is debited and the Customer Account/ Cash is credited.

6.4 Clearing Department

Banks collect cheques for their customers that are drawn on other banks. This function of clearing its customers cheques by a bank is performed for settling payments through the clearing houses.

6.5 Types of Clearing

There are two types of clearing 6.5.1 Inward Clearing

The process where instruments drawn payable on UBL, Cantt. Branch are deposited by the holder with other banks/ branch and presented for payment. 6.5.2 Outward Clearing The process where the instrument drawn payable on some other bank/ branches is deposited for collection with UBL, Cantt. Branch

6.6 Process of Clearing

A clearing house is a place where clearing officers of all scheduled banks get together to settle payments and receipt of cheques drawn on each other. Cheques received at UBL, Cantt. Branch Peshawar are sorted by the officers and a copy of the clearing schedule prepared sent to the clearing house supervised by the State Bank of Pakistan in all the major cities of Pakistan and in the smaller ones by the National Bank of Pakistan as an agent of the central bank.

CHAPTER 7 ADVANCES DEPARTMENT

Commercial banks are so named because they specialize in loans to commercial and industrial businesses. Banks make three types of loans: commercial and industrial loans, consumer loans, and mortgage loans. Commercial and industrial loans are loans to businesses or industrial firms. These are primarily short-term working capital loans (loans to finance the purchase of material or labour) or transaction or

longer-term loans (loans to purchase machines and equipment).13 Most commercial banks like UBL offer a variable rate on these loans, which means that the interest rate can change over the course of the loan. Whether a bank will make a loan or not depends on the credit and loan history of the borrower, the borrowers ability to make scheduled loan payments, the amount of capital the borrower has invested in the business, the condition of the economy, and the value of the collateral the borrower pledges to give the bank if the loan payments are not made.

7.1 Functions of the Advances Department

The Credit Officers of UBL, Cantt. Branch Peshawar strives to create a niche in the market for UBLs credit products and look for genuine potential borrowers and make advances on merit basis. The Department handles cases of long and short-term loans and accepts verified credit proposals and forwards them for processing to the Credit Committee in the Regional Head quarters. The officers monitor the loans after the limit has been sanctioned and send monthly report to the Management regarding the amount of advances made to he customers.

7.2 Various kinds of Advances made

UBL Cantt, Branch offers different types of advances to its customers to cater to their financial needs and match their suitability. It offers fund based; immediate disbursement of the loan and non-fund based; disbursement subject to some consequential event, secured; pledging specified assets to ensure repayment and un secured; a credit not backed by any security. Besides, the time duration for a credit to be

13

Meenai. S. A. (2000). Money and Banking in Pakistan. Karachi: The Allies Book Corporation

repaid within varies from short; up to one year, medium; up to three years and long; above three years.

7.3 Types of Credits

The branch undertakes all the credit operations according to the banks credit policy that strictly instructs all branches to comply with the State Bank of Pakistans regulations and prohibits violation of the same. The following types of credit are offered at the Cantt. Branch

7.4 Fund Based Advances

7.4.1 Running Finance This is a business related financing facility extended only after its purpose and consideration has been clearly specified by an undoubtedly credit worthy customer. It can be either, secured or unsecured and to meet the short-term needs such as the working capital requirements of clients. Customers are provided finance for purchase of goods needed by them on behalf of UBL that they agree to purchase from it at marked up price on deferred payment basis. It is a kind of an overdraft allowing withdrawals through cheques in excess of the current account maintained by UBLs most reliable and established customers. Here, the mark up is charged only on the overdrawn amount. There are two types Temporary Running Finance that is available to customers with an established market reputation for a short period. Regular Running Finance that is allowed only after appropriate approvals by the Credit Committee. 7.4.1.2 Processing Procedure

In the second type, obtaining credit reports of the applicants from their bankers is considered a prudent exercise. The finance is secured by one or more types of securities and amount disbursed only after the charge documentation formalities are completed, as it may prove impossible to obtain any once the borrower is allowed to make the drawings. The Prudential Regulations regarding the per partys lending limit, linkage of the borrowers equity with his total facility, obtaining financial statements are strictly adhered to by the UBL, Cantt. Branch in all cases. Nature of the goods offered as security, their marketability and the ability of the party to adjust the finance on due dates are important factors that are considered by the bank. Reappraisal of the limits from a competent authority is also considered from time to time depending on the then financial position of the borrower. Drawings through cheques are the banks purchases for the customer and deposits into it are the banks sale price charged from the customer. In case the finance is not adjusted up to the expiry date a grace period is given as an extension for repayment, for which also mark up is charged.

7.4.1.3 Calculation of Sale Price Amount of Mark up for Finance period + Mark up for Cushion Period + Bank Finance (principal)14. These components of the Banks sale price as calculated as under 7.4.1.3.1 Amount of Mark up for Finance period

14

Saima Rahim (2003). An Internship Report on NBP, Peshawar Cantt Branch: IMS Peshawar

Amount of finance x Period of finance x Rate of mark up 1000 7.4.1.3.2 Amount of Mark up for Cushion period Amount of finance x Cushion period x Rate of mark up 1000 7.4.1.3.3 Bank Finance Actual amount utilized by the client. 7.4.2 Cash Finance- Non Interest Cash Finance This facility also called Cash Credit is normally provided against pledge or hypothecation of goods and raw materials etc. After sanction of limit, the borrower is allowed to draw funds from the Cash Finance account through cheques up to his Drawing Power. This allows for easing the short-term liquidity crunch of the borrowers in the form of working capital financing. Limits are sanctioned after proper credit investigation of the borrower is made and documentation formalities completed. 7.4.2.1 Processing Procedure On receipt of Sanction Advice, the terms and conditions should be thoroughly scrutinized and documentation formalities completed within the prescribed time limit. The security asked for is pledge of non-perishable items of value insured and kept under UBLs lock and key in a well-protected godown. It is also allowed against open pledge i.e. goods lying outside godowns. The amount of insurance is 110% of the total value of the goods. Drawing Power is calculated keeping in view the margin as specified in the Sanction Advice that is available to the borrower for withdrawals through writing in cheques.

7.4.2.2 Calculation of Drawing Power 100 Margin x Worth of goods pledged 100 Therefore, if the limit allowed is Rs. 500,000 in the Sanction Advice and the goods pledged are worth Rs. 700.000, the Drawing power is calculated to be Rs. 525,000. However, since the limit is Rs. 500,000 the Drawing power of the borrower is also considered the same. 7.4.3 Demand Finance- Non Interest Demand Finance This is a trade related mode of finance, where the securities tendered by the customer are purchased and simultaneously resold to him at a Marked up Price. The agreement signed to this affect is called the Buy Back Agreement. It is a single disbursement finance provided on deferred payment basis i.e. repayable in monthly, quarterly or sixmonthly installments or in lump sum. A cushion period of 210 days is meant to cover the eventualities arising in case the finance is stuck up or not paid according to the mutual agreement between the customer and UBL. It is extended for a period of more than one year and involves consideration of the following factors Tenor including the grace period is not more than 7 years otherwise approval from the competent authority is required. The borrower has a clear purpose, strong financial condition, resourceful management, viable cash flows and properly perfected tangible security. The proposal must also generate incremental earnings. The finance proposal must be supported by project feasibility by reputed consultants, financial projections, protective

covenants, collateral support analysis and audited financial statements for a minimum of three years. 7.4.3.1 Calculation of Sale Price Sale Price of the bank is the amount that has to be repaid by the customer. It includes the amount of Bank Finance + Mark up for the limit period + Mark up for the cushion Period. 7.4.3.1.1 Amount of Mark up for the Finance Period Rate of Mark up x Bank Finance x (Total number of installments + 1) 100 x 2(Number of installments in 1 year) 7.4.3.1.2 Amount of Mark up for Cushion Period Rate of Mark up x Bank Finance x Number of Cushion period days 100 x 365 7.4.4 Finance Against Trust Receipt- FATR This facility is extended to valued customers only to enable them to obtain delivery of the goods received under a Letter of Credit or against bills under collection and shall retire the documents out of the sale proceeds of goods or from other sources. The borrower signs a standard Trust Receipt form and other related security documents covering hypothecation of goods where he undertakes to take the goods as a trustee of the bank and pay UBL the sale proceeds without any deductions as he himself is able to sell the goods. 7.4.5 Finance Against Imported Merchandise- FIM

Under the Import Letter of Credit either at the partys request or due to the importers inability to discharge the liability immediately, FIM facility for a period of not more than 90 days against pledge of the imported goods on mark up basis is extended. In case of reputed customers the FIM is changed into FATR, where the customer obtains the goods after completing the necessary formalities.15 7.4.6 Export Finance This facility is provided for a period of 180 days under the rules, regulations issued by the State Bank of Pakistan. UBL provides facility against pre/ post shipment exports at agreed rates of return. 7.4.7 Agricultural Finance UBL makes agricultural advances on easy terms and conditions to small-scale land owning farmers that aims to boost the countrys economy and yield greener harvests. It enables farmers to buy good quality seeds, fertilizers, pesticides and agricultural implements. Through the government loan scheme for Haris, UBL is striving to make Pakistans economy strong.

7.5 Non-Fund Based Advances

7.5.1 Letter of Credit It is a written undertaking by the issuing bank given to the seller (beneficiary) at the request, and in accordance with the instructions, of the buyer (applicant) to effect payment (that is, by making a payment, or by accepting or negotiating bills of
15

UBL, (2000). Credit Manual. Karachi

exchange) upto a stated sum of money, within a prescribed time limit and against stipulated documents. Although it is initially a non-fund based liability of the bank, it should pay attention so that it doesnt turn into a fund-based liability. It is therefore an arrangement by UBL for settling international commercial transactions, providing a form of security to the parties involved and ensuring payment provided the terms and conditions laid down have been fully met. 7.5.2 Letter of Guarantee and Bonds These are non-fund based facilities before the extension of which is determined that the customer has a well-defined and clear purpose and requires it for a specified time stipulating the amount. UBL Cantt Branch Peshawar usually issues the following types of guarantees. 7.5.2.1 Advance Payments Guarantees issued on behalf of customers to guarantee payments such as rent to the landlord, duties to the customs and excise authorities and to suppliers for payments of good etc. 7.5.2.2 Mobilization Advance Guarantees issued when a contractee has provided funds to the contractor to enable him to complete the work under the contract. It stipulates that the funds would be used for the purpose for which they have been disbursed and that the contractor would submit his final bill within the prescribed period. 7.5.2.3 Performance Guarantee required under a contract in order that the contractor completes the job specified as per the terms.

7.5.2.4 Bid Bond issued on behalf of a customer to tender his bid for a contract. Instead of depositing cash as earnest money, UBL issues a Bid Bond. 7.5.2.5 Security Deposit Guarantee issued to public utilities authorities for supply of gas/ electricity, or for membership of some association or club where security by way of cash is avoided. 7.5.2.6 Shipping Guarantees issued in favour of the shipping company to enable the importer to obtain delivery of the goods without producing bills of lading.

7.6 Processing of the Credit Proposal

Relationship Managers at the designated branches initiate and submit Credit Proposal Package filled in all respects and forward it to the Credit Committee Number 1 that either approves it if it is within their assigned limits or further forward it to Credit Committee Number 2. 7.6.1 Documentation of the Credit Documentation gives rise to rights and claims and hence serve as Evidence of Contract and Charge. The documents that serve as a poof and record of the terms and conditions agreed upon by UBL and the customer are Evidence of Contract. In case of secured finances the documents are charged properly by UBL Cantt. Branch as in the absence of any such charge the bank may not be able to recover the amount. The Primary Documents such as the Demand Promissory note, Letters of Hypothecation, Pledge, Mortgage, Lien, Guarantee etc. are necessary for the bank to prove its claim against the borrower whereas the Secondary Documents such as the Letter of Facility, Ownership etc. are obtained to establish minor details of the contract in order to minimize or avid any complications in case of litigations.

7.6.2 Risk Management The risk management function of the bank is divided into two stages 7.6.2.1 Pre Approval and Pre Disbursement Stage where the branch collects all relevant information and analyses it before forwarding it for further scrutiny. Only upon receipt of Document Authorizing Credit (DAC) from the Credit Analysis Division (CAD) the amount is disbursed. 7.6.2.2 Post Disbursement till the Final Adjustment Stage where the Credit Officer keeps track of the borrowers business related activities and his financial position in order to know before hand whether he would be able to repay the remaining amount or not.

7.7 Adverse Classification and Provisions

A facility becomes non-performing or weak when the borrower faces difficulties in its repayment schedule or amount, i.e. he is not able to repay the installments on the specified time or the amount in full. 7.7.1 Other Assets Especially Mentioned: are facilities classified as such that are overdue their repayment schedule past 90 days. Here, UBL does not make any provisions to safeguard it against losses. 7.7.2 Substandard: are those that are overdue 180 days and for which UBL has made 20% provision of the net realizable value of all the securities rendered for safeguarding its interest. 7.7.3 Doubtful: those overdue for an year and backed by 50% of provisioning. 7.7.4 Loss: overdue for two years with 100% provisioning.

7.5 Write Offs

Provisions are a cushion for the ultimate, unavoidable situations where write offs are required because remedial and recovery efforts fail in collecting the outstanding credits. At UBL, Cantt. Branch, write off decisions are made when the borrower is insolvent, the granters are untraceable or unable to discharge liability, the bank has lost the legal right to recover the amount such as in inchoate instruments.16

7.6 Importance of Securities

Securities reduce the risk of non-payment by the borrower and ensure proper compliance of the terms and conditions of the financing agreement. Although collateralized loans do not guarantee repayment, yet they bind the customer in repaying the amount and releasing the goods pledged or the property mortgaged. The following points are kept in view by UBL when accepting securities. They must have a good and clear title and be of adequate value and non-perishable. Besides, they should be easily transferable, marketable and encashable.

Important Classes of Securities

Security Real Estate Charge Registered Equitable Mortgage Hypothecation Primary Documents or Title Documents, Memorandum of Deposit, Power of Attorney IB 25 (Letter Hypothecation) or IB 25/ IB 26 of

Machinery/ Fixed Assets

Raw material/ Finished Pledge

16

M. M. Malik (1986), Practice and Law of Banking, Karachi: The Institute of Bankers of Pakistan

goods Securities Credit Balances Accounts

Hypothecation Pledge in Lien IB 26 Letter of Lien

Shares, Receivables, Assignment Contractual rights House hold Chattels Personal Assurances Chattel Mortgage Indemnities Guarantees

Letter of Assignment

Letter of Assignment

and Letter of Indemnity, Letter of Guarantee

Source: UBL, (2000). Credit Manual, Karachi

CHAPTER 8 FOREIGN EXCHANGE DEPARTMENT

The expansion of trade in recent decades has been paralleled by the growth of multinational banking. Banks have historically financed international trade, but a notable recent development has been the

expansion of branches and subsidiaries that are physically located abroad, as well as the increased volume of loans to foreign borrowers. Foreign Exchange Policy and its operations in Pakistan are formulated and regulated in accordance with the provisions of the Foreign Exchange Regulation Act, 1947 with the object to regulate, in the economic and financial interest of Pakistan, certain payments, dealings in foreign exchange, securities, import/ export of currency and bullion. The State Bank of Pakistan can authorize any person upon application to deal in foreign exchange openly or with some restrictions.

8.1 UBLs Foreign Exchange Department

UBL Cantt. Branch Foreign Exchange Department deals almost in all types of foreign banking transactions such as Forex Accounts Collection Services Forex Remittances Guarantees and Indemnities Letters of Credit Documentary Bills for Collection Lockers facility

8.2 Foreign Currency Accounts

UBL Cantt. Branch Peshawar is authorized to open following foreign currency accounts with it

Pakistani nationals residing in or out of Pakistan, including those having a dual nationality

All foreign nationals, residing in or out of Pakistan Joint Accounts in the names of residents or non-residents All diplomatic missions accredited to Pakistan and their diplomatic officers

All International Organizations in Pakistan Firms holdings and Companies established/ incorporated and

functioning in Pakistan, including those having foreign share

Charitable Trusts, Foundations etc. exempted from Income tax Branches of foreign firms and companies in Pakistan All foreign firms/ corporations, other than banks and financial institutions owned by Banks, incorporated and operating abroad provided persons who are otherwise eligible to open foreign currency accounts own these

UBL maintains the following kinds of foreign currency accounts Foreign Currency Current Accounts Foreign Currency Saving Accounts Foreign Currency Term Deposit Receipts

8.3 Non-Resident Rupee Accounts

Accounts of individuals, firms or companies resident in countries outside Pakistan are designated as non-resident accounts. All such accounts are regarded for the purpose of Foreign Exchange regulations as accounts of countries in which the account holder is residing.

8.4 Joint Accounts of Residents and Non-Residents

There is no restriction on non-residents maintaining accounts jointly with residents but these are treated as non-resident irrespective of the fact whether operated solely or jointly.17

8.5 International Trade

Banks play a very important role in settlement of rights and claims that arises as a result in the contest of international trade between sellers and buyers. There are four methods available through which international trade debts are settled Open Account (Consignment) Documentary Collection (On D/P or D/A basis) Documentary Credits (Revocable, Irrevocable and Confirmed L/Cs) Advance Payment

8.6 Authorized Rates for Foreign Exchange Transactions

State Bank announces the rate for foreign exchange transactions. The authorized dealers are given general permission to determine their own rates of exchange, both for spot and forward transactions for the public
17

UBL, (2000). Foreign Exchange Manual, Karachi.

subject to the condition that the margin between the buying and selling rate should not exceed 50 paisa per US Dollar or its equivalent in other currencies. This condition does not apply to inter bank transactions.

8.7 Collection Services

UBL provides collection services on foreign bills for collection to its clients such as Foreign Currency Cheques, Travellers Cheques, Foreign Demand drafts deposited by its customers for its collection.

8.8 Foreign Remittance

These can be either inward or outward. In case of Inward Remittances where the authorized dealers purchase foreign exchange received in the form of MTs, DDs, TTs, Travellers Cheques and Foreign Currency Notes it flows in and in case of Outward Remittances where the authorized dealers sell foreign exchange by issuing the above mentioned instruments, it flows out.

8.9 Categories of Inward Remittances

Inward remittances mainly fall in one of the following five categories

8.9.1 Indenting Commission This remittance is received in the favour of indenting agent in Pakistan in case of imports into the country. An indentor is an agent who negotiates sale on behalf of the foreign exporter. 8.9.2 Advance Payment

An exporting customer negotiates with a buyer abroad on the condition that full or part of the sale proceeds may be remitted before shipment. The customer at UBL fills in the Advance Payment form. 8.9.3 Sale Proceeds of Exporters Sale proceeds of Pakistani Exporter are received in part or in full as per terms of Documentary Credit or Firm contract. All export documents alongwith Form E (duplicate and triplicate copies) must pass through the medium of an Authorized Dealer within 14 days from the date of shipment. 8.9.4 Miscellaneous Earnings These are the remittance received for rendering any service to foreign customers/ clients for advertising, fee of legal services etc.

8.10 Instruments of Inward Remittances

Foreign Currency Cheques and Foreign Demand Drafts deposited by UBLs customers for collection. Foreign Money Transfers or Foreign Telegraphic transfers received from foreign banks to the credit of its customers accounts. Rupees, DDs, MTs, and TTs drawn by one of the banks correspondents/ branches on their Non-Resident Rupee Account maintained with the branch. Encashment of Foreign Currency Travellers cheques and Foreign Currency Notes.

Export proceeds whether under Letters of credit or without Letter of credit.18

8.11 Categories of Outward Foreign Remittance

These are divided in two types Remittances affected with prior approval of SBPs Exchange Control Remittances affected without the prior approval of the SBP

8.12 Forms for Outward Remittances

There are four types of application forms Form I which is used to cover remittances against imports for reporting purpose to SBP Form T-1 which is used to cover sale of foreign exchange for travel for other than business purposes Form T-2 which is used for travel for business purposes Form M is to cover all other remittances.

8.13 Procedure for Purchasing Foreign Exchange

The customer at UBL Cantt. Branch lodges an application on the prescribed form, duly supported by the requisite documents. The Forex officer at the branch examines the application and after being satisfied, approves the remittance on behalf of the SBP. In case of a transaction
18

Saima Rahim, (2003). Internship Report on NBP, Peshawar Cantt Branch: IMS Peshawar

requiring prior approval from the SBP, the branch forwards the application to it for consideration, with comments under its stamp and signature.

8.14 Instruments of Outward Remittances

Foreign Demand Drafts issued by UBL, Cantt. Branch Cheques issued by Foreign Currency Account holders Foreign Telegraphic Transfers/ Money transfers Travellers Cheques

8.15 Sending and Receiving Funds

8.15.1 TezRaftaar: UBL's remittance service, TezRaftaar offers all overseas Pakistanis the fastest and the most convenient delivery of their money to their beneficiaries in Pakistan. Best of all, TezRaftaar is completely cost free and is available at all UBL branches along the Bank's Network in the Middle East, UK and US. This facility is open to all including those who are not UBL account holders and is completely reliable. 8.15.2 Money Gram: It is a 10-minute person-to-person money transfer service, which is quick and reliable and allows customers to send money worldwide. UBL is providing Money Gram Service through its domestic branch network. An extensive network of Money Gram agents, linked by computers around the world, ensures that our customer's money is transferred safely. Thousands of people already use the Money Gram service every day, taking advantage of the

extensive Money Gram equality agent network. Sending funds via the Money Gram Service is handled using the Money Gram send forms.19 When a customer wants to send money via Money Gram, he should ensure there is a suitable receive location where the receiver can collect their funds.

8.16 Documentary Credits

Banks play a vital role in foreign trade transactions by helping both, the importer and the exporter. Dealings of a bank in relation to the whole process of foreign trade are concerned with the documents only and not with the goods. The importance of the documents must be understood as per Article 4 of Uniform Customs and Practice ICC Brochure 500 that states In documentary credit operations, all parties concerned deal with documents, and not with goods, services and/or performances to which the documents may relate. Worldwide adherence to the ICCs Uniform Customs and Practice for Documentary credits (1974 Revision)-UCO- and the increasing use of ICC standard credit forms assist towards a uniform documentary credit practice.

8.17 Advantages of Documentary Credit

Documentary Credits serve four purposes
19

http:// www.ubl.com.pk

They are the classic instruments for financing purchases of foreign goods and foreign equipment

They may assist the issuing bank to grant finance to the importer and monitor its use

They are an effective way of bringing an element of confidence and security into transactions for the commercial parties

They constitute a routine instrument for exporters to secure payment, provided they are not burdened by needlessly complicated clauses and conditions

8.18 Types of Credit

There are various types of documentary credits and its commercial value depends on its type but the two main classifications are 8.18.1 Revocable Credit It can be amended or cancelled at any time without prior warning or notification to the seller. It therefore, involves risk as the credit may be amended or cancelled while the goods are in transit and before the documents are presented or although presented, before payment has been made. The seller would then face the problem of obtaining payment directly from the buyer. On the other hand it gives the buyer maximum flexibility, as it can be amended or cancelled without prior notice to the seller upto the moment of payment by the bank at which the issuing bank has made the credit available. 8.18.2 Irrevocable Credit

This type can be amended or cancelled only with the agreement of all parties thereto. It gives the seller greater assurance of payment, but he remains dependent on an undertaking of a foreign bank. It is lesser flexible as the credit can be only amended or cancelled if all parties agree. 8.18.3 Confirmed Irrevocable Credit As there are often two banks involved, the issuing bank and the advising bank, the buyer can ask for an irrevocable credit to be confirmed by the advising bank. If the advising bank agrees, the irrevocable credit becomes a confirmed irrevocable credit. It gives the seller a double assurance of payment, since a bank in the sellers country has added its own undertaking to that of the issuing bank. Since it represents an additional requirement on the part of the seller, it is more costly.20 In Pakistan only this type of Letters of Credit is in operation and hence also by UBL.

8.19 Parties to a Letter of Credit

Usually the following five parties are involved in a letter of credit The buyer who is the importer and the account party The bank issuing the Letter of Credit or the opener bank i.e. UBL The advising bank or the correspondent in the exporters country, which advises the exporter of the opening of a Letter of credit
20

The paying or negotiating bank on which the draft is drawn

Winqwist Carl-Henrik, (1978). Guide to Documentary Credit Operations, Sweden: ICC Services S.A.R.L.

The seller or exporter who is the beneficiary of the credit

8.20 Credit Application

The instructions to be given by an applicant (customer) to UBL covers the following The full and correct name and address of the beneficiary (seller) The amount of the credit Whether the credit is to be available by payment, acceptance or negotiation The party on who drafts, if any are to be drawn and the tenor of such drafts A brief description of the goods, including details of quantity and unit price, if any Details of the documents required The place of shipment or dispatch or taking in charge and the destination Whether the transfer of the goods from one vessel to the other, or from one mode of transport to another i.e. transshipment is allowed or not Whether partial shipments are prohibited

The latest date for shipment, dispatch or taking in charge (if applicable)

The period of time after the date of issuance, for the bills of lading or other shipping documents within which they must be presented for payment, acceptance or negotiation

The date and place of expiry of the credit How the credit is to be advised, i.e., by mail, or by cable, telegram or telex

8.21 Settlement of Claims

The settlement of claims arising in the international trade is carried out through foreign currency accounts maintained by the banks with each other. An account maintained by UBL with its overseas correspondent bank is its Nostro Account. All payments and receipts in foreign currency are ultimately settled through this account. On the other hand, the convertible Pak Rupee accounts maintained by foreign banks in Pakistan are their Vostro Accounts. Thus, one banks account with another bank abroad is at the same time both a Nostro and Vostro Account.

8.22 Issuing a Credit

i) The buyer and the seller conclude a sales contract providing for payment by documentary credit. ii) The buyer instructs UBL, the issuing bank, to issue a credit in favour of the seller, the beneficiary.

iii)

UBL asks Bank X, usually in the sellers country to advise or confirm the credit.

iv)

The advising or confirming bank informs the seller that the credit has been issued.

v)

The seller then sends the documents evidencing the shipment to the bank where the credit is available (this may be the issuing or the confirming bank or any other named in the credit as the paying, accepting or negotiating bank). Suppose, the credit is available at UBL.

vi)

As soon as the seller receives the credit and is satisfied that he can meet its terms and conditions, he is in position to load the goods and dispatch them.

vii)

UBL checks the documents against the credit. If they meet the requirements of the credit, it either effects payment in accordance with the terms of the credit, either to the seller if he has sent the documents directly to UBL or to the bank that has made funds available to him in anticipation reimburses in the pre-agreed manner the confirming bank or any bank that has paid, accepted or negotiated under the credit

After checking the documents by UBL, they are released to the buyer upon payment of the amount due, or upon other terms agreed between him and the bank. The applicant sends the transport document to the carrier who will then proceed to deliver the goods.

8.23 Settlement
There are three methods for settlement of a Letter of Credits transaction By Payment The seller sends the documents to UBL evidencing the shipment. After checking that they meet the credit requirements, UBL makes payment. By Acceptance The seller sends the documents to UBL evidencing the shipment accompanied by a draft drawn on it at the specified tenor. After checking that they meet the credit requirements, UBL accepts the draft and returns it to the seller. By accepting, the bank signifies its commitment to pay the face value at maturity. By Negotiation The seller sends the documents to UBL evidencing the shipment accompanied by a draft drawn on the buyer or any other drawee specified in the credit, at sight or at a tenor, as specified in the credit. After checking that they meet the credit requirements, UBL negotiates the draft. If a bank other than UBL does negotiation, it sends it the documents and the draft and obtains reimbursement in a pre agreed manner.

8.24 Lockers Facility

UBL, Cantt Branch provides locker facilities to its valued customers at very reasonable charges. This is called the licensor- licensee relationship. Since the Forex Department has been centralized and there is not much foreign exchange transactions going on, the lockers service comes under this Department. Operating the Locker Annual rent is charged according to the size of the locker and a key given to the owner/ customer. Every time the locker is operated the date and time is recorded in the Locker register and the customer asked to sign it.

CHAPTER 9 ANALYSIS
9.1 Qualitative Analysis
The six-month long internship at United Bank Limited, Cantt. Branch, Peshawar has been a sufficient duration to personally observe and experience the working and analyze certain factors related to the environment of all the Departments in the Branch.

9.2 Departmental Problems at the Branch

The following are some of the problems and shortcomings that were inevitably prominent. 9.2.1 Deposits Department In order to save time the addresses filled in the required section of the account opening forms are filled without confirming that they are appropriate for using for correspondence purposes in case of any notifications to be sent to the customers. In cases where presence of the customer himself is a must, it is sometimes compromised due to the fear of loss of customers. The targets given to be achieved by the Deposit Department results in compromising on the quality of the deposits and the customers. Besides, more stress is made on the number of accounts opened within a certain specified time than on the size of the deposit base.

The present format of the account opening forms seems more complicated to the lesser-educated customer and hence he takes it away to be filled with somebodys help, but unfortunately, rarely comes back.

9.2.2 Bills and Clearing Departments The carelessness of the officers at times result in delay of collection, as the original advice is lost in post and proper filing of the copy is not done. The same officer of the branch does the posting of the bills and cheques, clearing and collection that results in unnecessary delay. Reasons of cheque return are at times not mentioned on the return memos that show the carelessness of the officers. Affixing wrong stamps due to lack of training also results in extra delay and expenditure. 9.2.3 Remittances Department The procedure of applying tests is not know to all the officers as it is practiced by only one of them and hence it causes delay when it is applied by the others in case the said officer is absent. The test application officer works manually and there is no other person to assist him that results in spending most of the time in applying these.

The issuance of TTs, MTs and DDs is done from the same counter where cash transactions and deposit of utility bills dues is made resulting in unnecessary rush at the cash counter and delay in services.

9.2.4 Cash Department Rare instances of fake currency notes result in loss to the branch and the cashier who accepted them, that affects their work negatively. Manual counting system by the cashiers is a very time consuming exercise, especially if there is a rush of customers. The casual manner in which the cashiers conduct themselves result in projecting a negative image for the branch. 9.2.5 Advances Department The filing and record maintenance of the credit related documents is not done efficiently due to lack of computer skills of the related officers. Lack of infrastructure for carrying out computerized/ automatic financial analysis of the borrowers businesses is another shortfall of this Department. Visiting clients for business purposes in the work hours results in the customers who walk in the branch to go back without being entertained. They feel uncared for and hence never turn back.

Partial knowledge of the banks credit policy and the State Banks Prudential Regulations results in improperly prepared credit proposals lacking in important information of the prospective borrower.

9.3 Organizational Problems

UBLs current organizational structure has the following major drawbacks 9.3.1 Lack of communication Calling out to peons or leaving the seat to communicate is a major source of noise and disturbance and unsatisfied customers. 9.3.2 Unequal Distribution of Work There are some employees who seem overburdened with the workload, whereas the others who sit in the branch waiting to pass the day. This shows lack of conducting proper job analysis and giving job description. 9.3.3 Decentralization The managers at all the branches including that of the Hub i.e. Cantt. Branch have limited authority and require taking approval of the higher management even in minor issues. 9.3.4 Delays in Processing Applications The delay in sanctioning of loans and responding to other customer financial problems result in dissatisfaction and hence lower turnover of more customers.

9.3.5 Recruitment and Promotional Policies Recruitments, transfers, promotions, increments, overseas postings and other benefits obtained on undue influence has caused demoralization of the potential work force and now instead of loyalty to the institution, a culture of attachment of hopes with the forces outside the institution has emerged. This factor has also damaged the attitude and behavior of the people at work. 9.3.6 Lack of Risk Management In United Bank majority of the officers do not know risk management process based on internationally proven and successful banking methodology. The risk and return trade off could not be accurately calculated and lack of professionalism in the area, has given the bank billions of rupees as non-performing loans.

9.4 SWOT Analysis

SWOT is an acronym for an organizations strengths, weaknesses, opportunities and threats. A SWOT analysis consists of sizing up a firms internal strengths and weaknesses and its external opportunities and threats in order to get an overview of the organizations strategies and its environment. The basic purpose of such an analysis is to develop strategies alongwith exploiting opportunities and strengths and neutralizing threats and removing weaknesses. The SWOT Analysis of UBL is as follows

9.4.1 Strengths UBL is one of the largest private banks of the country with a deposit base of Rs. 94883 million. Parties of financial repute and credit worthiness like the State Bank of Pakistan, Bestway Group and the Abu Dhabi Consortium besides by the Government of Pakistan, National Bank of Pakistans Trustee Department and the state Life Corporation own UBL. The management efficiency and effectiveness of the bank has improved greatly as is evident from the income pattern and provisions for loan/ write off practices. The total income increased by 16% and the net revenue from funds by 18% whereas provisions/ write offs decreased by 14%. Investment in profitable loan portfolios increased 32% in the financial year 2002. It has a well-connected and adequately equipped branch network of more than 1100 branches nationally and internationally. The launching of United Money Market Fund and the introduction of UBonLine shows the banks commitment to introducing consumer friendly and convenient services. The introduction of Relationship Banking that involves assessing and understanding customer needs, providing advice on the customers business needs and helping them find viable financial solutions to their business problems.

It offers corporate and retail banking services to its clients. It is very active in foreign trade transactions and the volume grew at a rate of 17% over the previous year.

UBL is actively making its presence in the international market by introducing UniCash Credit Cards in UAE, Bahrain and Qatar.

9.4.2 Weaknesses Increase in the non-performing loans due to political, economic and legal factors has adversely affected the banks image. Accumulated losses pushed the bank to cut down its promotional activities in order to reduce expenses that has affected the banks marketing policies. Administrative expenses amount to 51% of the total mark up revenue earned from making advances, which is considered very high. The staff, in whose hands lay the domain of credit management lacks the accounting background. Promotions are carried out on annual basis ignoring the importance of capabilities and performance outputs. United Bank Limited has been facing the problem of recruiting staff in excess of its requirements, besides most of them are plain Graduates.

Lengthy Credit processing and documentation procedures are a weakness of the bank.

Red tapism, poor technical infrastructure, lack of corporate culture, poor horizontal and vertical communication structure and low level of employees motivation are some of the other weak points of UBL.

9.4.3 Opportunities Reconstruction of Afghanistan is a great opportunity for the bank to grow by offering banking operations in the war-affected areas. Financial sector friendly policies of the Government by encouraging developmental activities such as construction of houses and making agricultural and small and medium businesses finances. Home remittances of Pakistanis working abroad through the banking channels have widely facilitated the banking operations. The current trend of professional degrees offered by reputed institutions can greatly help the bank achieve professionalism in its organizational culture by hiring MBA students who major in Banking and Finance. Expand its product line similar to other competitive banks by introducing various other modes of consumer financing such as car and consumer durables micro finances. Expansion of IT platform and internet based banking systems.

The Human Resource Management must be introduced and implemented at the regional level.

The stock market efficiency and sound exchange reserve level can provide a good opportunity for effective investment decisions.

The introduction of ATM facility in the branch will most certainly result in a positive image and improve the services offered to its customers.

9.4.4 Threats Increase in competition due to the rapidly growing number of foreign and domestic private banks offering highly specialized and attractive financial services. Low quality of UBL human resource as compared to its competitors in the market is not helping the bank achieve growth that it deserves. Reduction in developmental activities and foreign direct

investment due to the shaken investors confidence has also lead to a fall in the banks expansion pace. Extensive promotional campaigns run by the other banks are a major threat to UBL in that they are able to attract more customers.

9.5 Financial Analysis

Financial analysis using business or financial ratios and norms provides a means of assessing a firm's strengths and weaknesses. Using data from the

balance sheet and income statement, various ratios can be calculated, which can then be compared directly to those of competing firms of varying sizes. Comparing the firm's operating results with those of specific competitors or the industry as a whole helps identify relative strengths and weaknesses. In addition, comparing changes in a firm's ratios over time can highlight improvements in performance or problem areas needing attention. Financial analysis is done by the management of the organization or parties outside it, depending what for and what kind of information is required and by whom.

9.6 Financial Ratio Analysis

Ratio is defined as the quotient of two mathematical expressions and hence in financial ratio analysis a ratio is used as benchmark for evaluating the financial position and performance of a firm. Financial Ratios are used to weigh and evaluate the operating performance of a firm. They provide a meaningful comparison of a company to its industry. These ratios can be used to measure profitability, asset utilization, liquidity and debt utilization. The major analysis in this regard is Trend Analysis i.e. Horizontal analysis and Vertical analysis. In trend analysis, the performance of a firm is seen over a number of years, because analysis of only a single years figures as it is done in case of Ratio Analysis may not present an accurate picture of the firm.21 UBL has not published its annual report for the financial year 2003 yet, therefore the annual report of 2001-2002 is used for calculating the following important ratios
21

Emery, D.R, J.D Finnerty and J.D. Stowen, (1988). Principles of Financial Management. New Jersey: Prentice Hall.

Financial ratios Table Years Net Profit Margin Return on Investment Return on Equity Total Asset Turnover Fixed Asset Turnover Current Asset Turnover Current Ratio Cash Ratio Debt to Equity Ratio Debt to Total Assets Interest Coverage Ratio Advances to Deposits Investment to Deposits Tot Expenditure to Tot. Income Interest Earned to Advances Interest Expense to Deposits 2000 6.04 0.43% 10.27% 0.07 4.15 0.14 0.77 7.80% 22.63 0.95 1.25 57.58% 26.20% 90.26% 15.49% 5.22% 2001 2002 (65.12) 12.69 (4.43%) 0.76% (887.99%) 16.78% 0.07 0.06 4.0 4.07 0.11 0.09 0.84 0.91 9.59% 9.23% 197.59 20.58 0.99 0.94 0.10 1.51 56.46% 46.74% 20.22% 41.63% 89.76% 81.51% 14.37% 15.20% 4.49% 3.37%

Source: UBL, (2002). Annual Report, Karachi

9.6.1 Profitability Ratios These relate profits to sales and investment. These are a good indicator of a firms overall effectiveness of operation. These include 9.6.1.2 Net Profit Margin It is a measure of the firms profitability of sales after taking account of all expenses and income taxes. It shows the net income per Rupee of sales.

Net Income Total Revenue

x 100

The Net Profit Margin of UBL has improved considerably; it was (65.12%) in the FY 2001 but has shot up to 12.69% in the FY 2002. this is because of he fall in the profit rates offered to the depositors due to high levels of liquidity in the market. 9.6.1.3 Return on Investment It is also called the earning power and measures the overall effectiveness in generating profits with available assets/ invested capital i.e. it measures the profitability per Rupee of investment in the firm. Net Income Total Assets UBLs ROI was (4.43%) in the FY 2001 and improved by more than a 100% to 0.76% in 2002. Although the assets have increased, yet the ratio has improved which is because of the increase in the total income of the bank. 9.6.1.4 Return on Equity This ratio measures the earning power on shareholders book value investment and is frequently used in comparing two organizations in the industry. Net Income Total Equity The ROE of UBL has improved from (887.99%) in the FY 2001 to 16.78% in 2002 that reflects the banks acceptance of strong investment opportunities and effective expense management. That is why although the x 100 x 100

shareholders equity has increased over the last year, yet the improvement in the net profit margin has shown improvement. 9.6.2 Asset Utilization Ratios This ratio measures the relative efficiency with which a firm utilizes its assets to generate revenue. The more productive the assets of an organization the higher would be the ratio. These include 9.6.2.1 Total Asset Turnover This shows the revenue generated per Rupee investment in total assets Mark up Revenue Total Assets This ratio has slightly fallen as compared to the previous year. It stood at 0.07 in 2001 and came down to 0.06 in 2002. This was because of an increase in the total assets not matched by proportionate increase in the mark up revenue. This can also be attributed to a selective approach in making advances and an increase in the non-performing assets in the form of bad debts, but the second reason is not the case here as they have fallen down from Rs. 11814.000 million in 2001 to Rs. 5740.000 million in 2002. 9.6.2.2 Fixed Asset Turnover This shows the revenue generated per Rupee investment in the operating fixed assets.

Mark up Revenue

Operating Fixed Assets This ratio has shown a small improvement from 4.0 times in the FY 2001 to 4.07 times in the FY 2002. This is due to an increase in the total revenue and a decrease in the operating fixed assets. The Mark up revenue has increased by Rs. 60.000 million and the operating fixed assets have declined by Rs. 32.484 million. 9.6.2.3 Current Asset Turnover This ratio gives the revenue generated per Rupee investment in the total current assets of the bank that includes short-term investments and lending. Mark up Revenue Total Current Assets The Current Asset Turnover ratio shows a decline as compared to 2002. It was 0.11 times in 2001 and 0.09 times in 2002. This is mainly due to large increases in the short-term investments and advances. 9.6.3 Liquidity Ratios These are used to measure a firms ability to meet short-term obligations as they become due. From these, an insight into the cash solvency of the firm and its ability to remain solvent in the event of adversity can be judged. They are

9.6.3.1 Current Ratio

This shows a banks ability to cover its current liabilities with its current assets. It can be calculated by dividing the total current assets with the current liabilities for a particular period. Current Assets Current Liabilities UBLs Current Ratio is improving with time. It was 0.84 in 2001 and 0.91 in 2002, which explains a decrease in the risk of short-term insolvency. This change is due to the fact that the bank has increased its short-term investments more than proportionately as compared to its short-term liabilities. 9.6.3.2 Cash Ratio This is a kind of quick ratio that shows how much of the most liquid asset i.e. cash is available to cover the current liabilities. Cash Current Liabilities This ratio has decreased from 9.59% in 2001 to 9.23% in 2002. This is due to an increase in UBLs current liabilities by accepting current deposits although its cash balances have increased. 9.6.4 Financial Leverage Ratios These ratios show the extent a firm uses debt financing as compared to equity. Two major debt ratios are as follow

9.6.4.1 Debt to Equity Ratio This shows the extent to which the firm is financed by borrowings and by the shareholders equity. Total Debt Shareholders equity UBLs Debt to Equity ratio shows that for every Rs. 1.00 of equity provided by the shareholders the bank has a debt of Rs. 20.58 in the form of borrowings and deposits. Although the debt to equity figure has improved for UBL yet it is heavily relying on debt financing as a consequence of huge accumulated losses. 9.6.4.2 Debt to Total Assets Ratio This ratio highlights the relative importance of debt financing to the firm by showing the percentage of the firms assets that are supported by debt financing. Total Debt Total Assets UBLs Debt to Assets ratio has shown a decrease of 5% in 2002 as compared to that of 2001 i.e. in 2001, Rs. 0.99 of debt was financing every Rs. 1.00 and in 2002, it decreased to Rs. 0.94. This decrease is attributed to a decrease in the total short-term and long-term liabilities. 9.6.5 Other Ratios Apart from the above there are certain other ratios that can help better analyze the performance of a bank. They are as

9.6.5.1 Interest Coverage Ratio This ratio serves as a measure of the firms ability to meet its interest payments and thus avoid bankruptcy. Earnings Before Interest and Taxes Interest Expense UBLs Interest Coverage Ratio has shown considerable improvement over the last years. Currently UBL is able to cover its interest payments 1.51 times its total earnings. This is not only because its revenue has increased but also of the fact that there is a large decrease in the banks borrowings. 9.6.5.2 Investment to Deposits This ratio shows the amount of investments employed per Rupee of deposit. It highlights the trust a bank poses in its deposits by employing the deposited funds in various investments to earn profits rather than keep the cash idle. Investments x 100 Deposits UBLs Investment to Deposits ratio has shown improvement. It was 20.22% in the FY 2001 and rose to 41.63% in the year later. The ratio has risen due to the positive activity at the Karachi Stock Exchange and the local equity market. 9.6.5.3 Advances to Deposits Ratio This ratio shows the advances made per unit of deposits i.e. what amount of advances are made per Rs. 1.00 of the customers deposits.

Advances x 100 Deposits The ratio has come down from 56.46% in 2001 to 46.74% in 2002. This is because the advances extended do not match the increase in the deposits of the bank. 9.6.5.4 Total Expenditure to Total Income This ratio shows the relationship between total income generated and total expenditure incurred in generating that income. The lower the ratio the more efficient the bank is in earning its profit, since, lesser the expenses incurred to earn it. Total Expenditure x 100 Total Income In order to generate an income of Rs. 1.00 UBL incurred an expenditure of 89.76% in 2001 and 81.51% in 2002. This shows that the bank has successfully managed its operations to earn the total income and at the same time keeping the expenditure low. This has been possible due to a decrease in interest expense and other provisions. 9.6.5.5 Interest Earned to Advances Ratio This ratio reflects the revenue generated from making advances. The figure gives the amount of revenue that has come from lending funds. If the ratio is high it means that the cost of lending has risen. Interest Earned Advances x 100

The Interest Earned to Advances ratio has from 14.37% in 2001 to 15.20% in 2002. The ratio has shown improvement due to higher revenue generated from lending to borrowers. 9.6.5.6 Interest Expense to Deposits Ratio This ratio tells about interest expense incurred in accepting funds for deposits. It is basically the cost of funds. Interest Expense x 100 Deposits The Interest Expense to Deposits Ratio has decreased by 24.94% from 2001 to 2002. It was 4.49% in 2001 and came down to 3.37% in 2002. This shows that the interest paid and payable has increased more in comparison to he deposits. Although the Deposit Rate offered to the customers fell, yet the bank incurred interest expense due to borrowed funds.

9.7 Trend Analysis

An analysis of the trend of financial ratios over time provides valuable insight into changes that have occurred in a banks financial condition and performance. Hence, it is never enough to just calculate the financial ratios and not see their trend i.e. whether they are increasing or decreasing steadily or not, in order to check the underlying improvement or deterioration. Trend analysis include Common-size and Index analysis 9.7.1 Common-Size Analysis It is an analysis of percentage financial statements where total assets divide all balance sheet items and all income statement items are divided

by net sales or revenues. This helps to spot trends with respect to the relative importance of these items over time.22 9.7.1.1 Analysis of the Balance Sheet The Common-Size Analysis of UBLs Consolidated Balance Sheet represents the trends in the financial years 2000, 2001 and 2002. a) Asset Side There has been an improvement in the total current assets of the bank due to an increase in short-term investments. Since the borrowing rates have fallen down, UBL decreased lending to financial institutions hence decreasing exposure to the possibility of non-performing loans. Another reason is the increase in liquidity due to home remittances from abroad that raised the cash and balances with other banks. The short and long-term advances have declined, implying that the bank is concentrating now more on non-interest income such as the share market and other businesses since the interest rates have fallen down. This decrease has simultaneously lowered the total non-performing advances as well. A reduction in the operating fixed assets points at selling these and hence also contributing to the increase in the cash and balances with other banks. b) Liabilities Side On the liability side, the total current liabilities show an upward trend in general. The main reason is the increase in the current deposits of the bank. The persistent trend in the fixed assets are encouraging in the sense
22

Van Horne, J.C and J.M. Wachowicz. (1998). Fundamentals of Financial Management (10th Ed), New York: Prentice-Hall International, Inc.

for UBL in that it will continue making short term, profitable advances. The total long-term liabilities show a declining trend over time due to a decrease in the long-term borrowings. This decrease in borrowing can be a result of the prevalent market liquidity and increase in the deposit base of the bank. The accumulated losses in the previous years have also discouraged further borrowing by the bank since it was unable to meet its previous obligations on time, hence explaining the declining trend in the total debts. c) Shareholders equity There is a notable decrease in the share capital as well as the accumulated losses. This decrease can be attributed to the adjustment in the accumulated losses against the banks share capital during the financial year 2002. An increase in the reserves of the bank has caused the total shareholders equity rise.

Common-Size Analysis Table of UBLs Balance Sheet

Assets Cash/ Bal with Banks Lending to FI Investment S/T Adv: Performing S/T Other Assets Total Curr. Assets Investment L/T Adv: Performing L/T Adv: N/Perf. L/T Oper. Fixed Assets Deferred Tax Assets Total L/T Assets Total Assets Liabilities Bills Payable Borrowings S/T Deposits Current Lease and others Total Curr. Liabilit. Fixed Deposits Other L/T Liabilities Total L/T Liabilities Total Debts Shareholders equity Share Capital Reserves Accumulated Loss Minority Interest Revaluation Surplus Total

Rs. in 000 2000 18775664 6141896 1387991 35451610 17850429 79607590 32387180 25804448 12955747 2767733 8297500 82212608 161820198 1186961 775287 90582065 11342116 103886429 38306766 10792853 4853198 152986048 22481680 4097172 (19820684) 2075982 8834150

2001 3609108 4370006 9190430 39489369 8641263 97782157 19388131 28477494 11813855 2864018 8297500 70840998 168623155 1540592 4004130 102568752 8838842 116952316 38747422 21264831 49219400 166171716 22481680 3960453 (27282709) 1168264 2123751 24541439

2002 70463707 3627557 33883311 43632117 2641471 118177074 33623058 26423058 5739798 2831534 5026459 73643958 191821032 1847025 174533 118167469 9986608 130175635 43998916 5212755 492116741 179387306 5180000 4258947 (722387) 1271700 2445466 12433726

Common-Size (%) 2000 2001 2002 11.60 21.50 17.93 3.80 2.6 1.89 0.86 5.5 17.66 21.91 23.4 22.75 11.03 5.1 1.38 49.20 58.0 61.61 20.0 11.50 17.53 16.0 16.89 13.77 8.01 7.01 2.99 1.71 1.70 1.48 5.13 4.92 2.62 50.80 42.0 38.39 100 100 100 0.73 0.48 55.98 7.01 64.20 23.67 6.67 28.35 94.54 13.89 2.53 12.25 1.28 5.46 0.91 2.37 60.83 5.24 69.36 22.98 6.21 29.19 98.55 13.33 2.35 16.18 0.69 1.26 1.45 0.96 0.09 61.60 5.20 67.86 22.94 2.72 25.65 93.52 2.70 2.22 0.38 0.66 1.27 6.48

Source: UBL, (2002). Annual Report, Karachi.

Assets Distribution for the Financial Year 2002

The Assets Distribution of United Bank Limited for 2002 presented in the form of a pie chart shows the following scenario.

Cash/ Bal. 18% Other C. Assets 3% Adv. Perf. 37% Investment 35% Adv. N/P 3% L/T Assets 4%

Liabilities Contribution for the Financial Year 2002

The following pie chart shows the liabilities side of the balance sheet composed of the following items in their respective percentages.

Deposits 84% C. Liabilities 1% L/T Liabilities 3% S. Equity 7% Min. Interest 1% Rev. Surplus 4%

9.7.1.2 Analysis of Income Statement The Common-Size Analysis of UBLs Income Statement is as a) Impact of Mark up Expense on Revenue The analysis of the income statement reveals that UBL has been able to control its interest/ mark up expense as a percentage of total revenues. This has resulted in an increase in the gross profit margin showing the efficiency of the bank in controlling its cost of sales and adopting a better strategy of pricing its products and services. b) Provisioning The provisions for non-performing loans have shown a downward trend from 14.79% in 2000 to 6.47% in 2002. It would result in pushing up the net profit of the current year and also return any good will that had decreased earlier on due to non-profitable operations. Besides, this also reflects an improvement in the credit risk management of the bank. c) Non-Mark up Expense The non-mark up expense shows a mixed trend due to variations in the revenue figures but has generally remained on the increasing side. Administrative Expenses contribute 99.14% of the total non-mark up expenses that is an indicator that these should be curtailed. d) Non-Mark up Income The non-interest income has shown an inconsistent trend in the past 3 years. The revenue from commission and brokerage has been increasing

constantly which points at an increased network of operations and the number of customers purchasing various products and services. Out of the total non-mark up income of 29.33%, commission and brokerages contribute 15.40%, hence supporting the previous statement. The bank should opt for offering more innovative products and services. Common-Size Analysis Table of the Income Statement Rs. in Millions 2000 2001 11497 11468 6734 6347 4763 5121 1700 1263 3063 3858 1097 1818 2915 6773 4669 632 5301 1472 (7200) (5728) 1739 (7467) 6 19821 00 00 2 27283 Indexed (%) 2000 2001 100 100 58.57 55.35 41.43 44.65 14.79 11.02 26.24 33.64 9.99 20.37 30.36 57.01 47.60 0.23 47.82 9.19 5.38 14.56 8.52 6.04 00 177.3 00 00 1.17 172.4 9.57 15.85 25.42 59.0 40.71 5.15 46.22 12.84 62.78 (49.95) 15.16 (65.11) 0.06 172.2 00 00 0.02 237.9

Items Mark up Revenue Mark up Expense Gross Profit Provisions and Bad Debts Net Mark up Income Non Mark up Return Commission & Brokerage 1149 Dividend/Exchange/ Others 2342 Tot. Non Mark up Income 3491 Total Income 6554 Non Mark up expenses Administrative 5473 Other provision & charges 26 Tot. Non Mark up expenses 5498 Prof before Extraord. Items 1056 Extraordinary items 618 Prof/ Loss before Taxes 1674 Taxations 980 Prof /Loss after Tax 694 Share of Minority Interest 00 Accu Loss brought forward 20380 Adjust against Share Cap. 00 Appropriation & Transfers Asset Revaluation Surplus 00 Transfer to Statu Reserves 135 Accu Loss carried forward 19821

2002 11528 5476 6052 746 5305 1798 1583 3381 8686 5879 51 5930 2756 26 2781 1319 1463 (11) 27283 25202 238 332 722

2002 100 47.50 52.50 6.47 46.02 15.60 13.73 29.33 75.35 51.00 0.44 51.44 23.91 0.23 24.12 11.44 12.69 0.10 236.7 218.6 2.06 2.88 6.26

Source: UBL. (2002). Annual Report, Karachi

e) Changes in Profit The profit before taxes in 2002 stands at 24.12% that is an increase of 148.28% over 2001. This improvement has been possible mainly due to reducing the provisions for bad debts and increasing the commission and brokerage return f) Remarks The Common-Size Analysis of UBLs Balance Sheet and Income Statement indicates that the bank is well on its way to progress and prosper as a competitive financial institution. Hence, it can be rightly said that UBL is re emerging as one of the best commercial banks of the country.

Income Composition 2002

The following chart shows the components of UBLs income in the financial year 2002 in their respective percentages.

Total Rev. 51% M up Exp. 18% Bad Debts 2% Adm Exp. 20% Other Exp. 0% Taxes 4% Prof after Tax 5%

9.8 Growth Analysis of UBL

Growth or Time Series analysis is done when financial analysts measure a firms performance over time. Comparison of a firms current performance to its past performances through financial analysis allows the analysts to determine whether the firm is progressing as planned or not. It is an essential tool of financial management and helps determine if the actual has deviated from the projected and with what magnitude. The theory behind Time Series Analysis is that the firm must be evaluated in relation to its past performance and appropriate actions must be taken where necessary in order to direct the firm towards its immediate and long-term desired goals. 9.8.1 Analysis of the FYs 2001 and 2002 in relation 2000 Through the Growth Analysis of the years 2000, 2001 and 2002 it can be seen that the current assets have shown a remarkable increase and so have the investments. This is a very healthy sign considering the low interest rates and high liquidity in the market. The Current Deposits have shown a decrease as compared to 2001, but the Fixed Deposits are seen to have increased 14% in 2002. The total expenses have tremendously decreased to a mere 5.86% in relation to the base year 2000. As a result the profit after tax has shown a 110.81% increase. The home remittances have increased tremendously due to restriction on hundi and havala forms of money transfers. The branches have decreased in number in 2002 since 2000. These aspects of UBLs growth are reflected in the following table and bar charts.

Growth of UBL Rs. in Millions 2000 2001 C. Assets 79608 97782 L/T Assets 82213 70841 Investment 33775 28579 Adv. Perf 61256 67967 Adv. N/P 12956 11814 C. Liabilities 103886 116952 L/T liability 45873 49219 Deposits-Current 905821 102569 Deposits Fixed 38307 38747 Net Equity 6758 7095 Total Income 6554 6773 Total expenses 5576 4779 Profit after Tax 694 (7467) Home Remittances 4743 8083 Imports 64574 66667 Exports 46191 48636 Branches 1390 1117 Staff 11879 8899 Earn/ Loss p. share 0.31 (3.32) 9.8.1 a) Growth in Assets Growth in Percentage (%) 2002 2000 2001 2002 118177 100.00 22.83 48.45 73644 100.00 (13.83) (10.42) 67506 100.00 (15.38) 99.87 70055 100.00 10.96 14.36 5740 100.00 (8.81) (55.70) 130176 100.00 12.58 25.31 49212 100.00 7.29 7.28 118167 100.00 (88.68) (86.95) 43999 100.00 1.15 14.86 8717 100.00 4.45 28.99 8686 100.00 3.34 32.53 5903 100.00 (14.29) 5.86 1463 100.00 (1175.94) 110.81 17134 100.00 70.42 261.25 83941 100.00 3.24 29.99 50677 100.00 5.29 9.71 1112 100.00 (19.64) (20.0) 8446 100.00 (25.09) (28.90) 0.62 100.00 (1170.97) 100

160% 140% 120% 100% 80% 60% 40% 20% 0% 2000 2001 2002 Curr Asse ts L/T Asse ts

The current assets reflect an increase of 148.45% and the fixed assets decline to 89.58% in 2002. b) Growth in Advances and Investments

250% 200% 150% 100% 50% 0% 2000 2001 2002 Investment Adv. Perf Adv. N/P

The Investments have shown an increase of 199.87%, the Performing advances a 114.36% and the non-Performing advances a decrease of 44.30% in 2002. c) Growth in Deposits

250% 200% 150% 100% 50% 0% 2000 2001 2002 Deposits Current Deposits Fixed

The Current and Fixed Deposits have shown an increase of 11.33% and 114.86% in 2002. d) Growth in Liabilities and Equity

140% 120% 100% 80% 60% 40% 20% 0% 2000 2001 2002 Curr. Liabilities L/T Liabilites S Equity

The Current liabilities have increased 112.58% and 125.31%, whereas the Long-term liabilities have increased 107.29% and 107.28% respectively in 2001 and 2002. The Shareholders equity has risen to 128.99% in 2002 from 104.45% in 2001. e) Growth in Expenses and Income

400% 200% 0% -200% -400% -600% -800% -1000% -1200% -1400% 2000 2001 2002 Expenses Total Incom e Profit after Tax

The expenses reported in 2002 are at 105.86% and the total income has risen to 132.53%. The profit after tax has shown tremendous recovery from (1175.94%) in 2001 to 210.80% in 2002.

9.9 Cross Sectional Analysis

The cross-sectional approach involves the comparison of different firms financial data at the same point in time, as they are interested in knowing how they are performing financially in relation to the competitors in the industry. Due to certain constraints the analysis will not be in much detail rather a mere glance at the financial performance of the banks similar in status to UBL in order to judge its standing in the banking sector. The following graphs and tables will help better analyse UBLs position relative to its competitors in the financial market. 9.9.1 Market share in Advances Total Advances in millions (Rs) 2001 2002 167225 167523 170319 140547 76586 78924 88383 75795 502513 462789

Years HBL NBP MCB UBL Total

% 37% 30% 17% 16% 100%

Although UBL suffered huge losses in the last years, yet its share in advances out of the total market reveal the customers confidence and its capability to regain its position. 9.9.2 Market Share in Deposits Rs. In millions 2001 273012 262022 153751 140736 829521

Years HBL NBP MCB UBL Total

2002 306316 295768 180777 161669 944530

% 33% 31% 19% 17% 100%

Deposits from financial institutions have been excluded to analyze the customer deposit base separately. The above two tables clearly show that UBL has better Advances to Deposit Ratio as compared to the other banks and the borrowed funds are closely matched by the lent funds. 9.9.3 Investment in Government Securities Ratio 2001 57.4% 58.1% 53.9% 45.0%

Years UBL HBL MCB NBP

2002 51.7% 51.5% 44.6% 43.1%

UBL has given equal weightage to investment in government securities as compared to the advances. This figure is neither too high nor low; as a high amount of investments in these would mean foregoing a possibly

large opportunity cost as government securities although reliable offer a Rs. in millions Years 2001 2002 HBL 50,281 128139 NBP 39,893 110520 MCB 48,217 81,407 UBL 20,444 64,860 Total 158,835 384,926 far lower rate as compared to the other securities.

% 33% 29% 21% 17% 100%

9.9.4 Average Advances to Average Deposits Ratio

60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00%

2001 2002 HBL NBP MCB UBL

UBL had the second highest average advances to average deposits ratio in 2001 and in 2002 it stands at the top. Non-Performing Advances to Gross Advances Ratio Ratio 2001 16.2% 22.5%

Years MCB NBP

2002 14.2% 26.3%

HBL UBL

28.2% 34.6%

26.4% 31.0%

35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2001 2002 MCB NBP HBL UBL

This ratio in comparison shows that UBL has the highest average of nonperforming advances to the total advances, implying that it has more debts gone bad as compared to the other banks. Although this ratio has come down from the previous years figure yet it is the highest in 2002.

CHAPTER 10 FINDINGS AND RECOMMENDATIONS

Recommendations are based on the previous sections of a report and are suggestions that the analyst feels are required to be implemented in order to improve further the standing and position of the firm in the financial world. These are thus based on the findings and shortcomings noted in an organization while working with it and then writing on it. Opinions of various capable individuals are sought who through their real life experiences and deep insight are better able to judge whether the course of action adopted by the organization is going to prove fruitful or does it require further improvement in the form of changes in its strategies. Following are the findings and recommendations for various Departments that were felt are required while consulting the staff members of UBL, Cantt Branch Peshawar

10.1 Deposits Department

The comparative analyses reveal that UBL has the lowest share of Deposits out of the total in the market. Since deposits are the lifeblood of a bank, it should attract more customers and expand its deposit base in the following manner 10.1.1 Simplification of Procedures

The procedure of opening an account should be simplified. The account opening form should be self-explanatory and include translations in Urdu for those customers who are not well read, since the fact cannot be ignored that many people do not have a good understanding of English. 10.1.2 No Duplication of Activities Once the account opening form is filled there should be no reason to submit a written application for opening an account, since it not only is a wasteful and time consuming exercise on the part of the customer but also makes filing lengthy. 10.1.3 Incentives for Depositors Those who deposit large amounts of money or are old customers of the bank should be given free credit lines upto a certain limit. Besides, financial advice should be provided to customers in case there is a change in the market trend before they seek for it. 10.1.4 Integrated Marketing Approach All the officers in Deposits Department should be involved in marketing and not just opening accounts and maintaining their records. This can be done through improving their personnel relations skills and applying the Uni-Service concept of visiting the potential customers at their offices and homes. 10.1.5 Performance Appraisal UBL should follow the performance evaluation policy strictly and award those who bring in deposits and help it increase its market share.

Unfortunately, this has been stated in the banks policy but is not being implemented.

10.2 Remittances Department

The Remittances Department at the Branch is divided into Inland Remittances and Foreign Remittances. Both these are dealt by separate officers and involve using specific stationary and procedures. The following recommendations are made for this very important Department of the bank 10.2.1 Organizing the Department The Department is spread over the entire bank with no specific person or desk for the purpose. Usually drafts and telegraphic transfers are made in the cash counter that results in hassle for the other customers. A senior officer detached from the other officers performing inland remittance transactions handles the foreign remittances. It would be better for them to sit together so that they can benefit from his experience and know how. 10.2.2 Centralized Money gram Services The customers receiving funds from abroad have to wait quite long in order to get their money as the branch sends the application form through fax to the City Branch from where it is confirmed whether the amount has been credited to the Cantt. Branch or not. This confirmation takes long at times and there is always a fear of the bank losing its goodwill in case of lengthy delays. The service should thus be decentralized and the Hub Branch having the authority of directly confirming the amount.

10.3 Cash Department

The following recommendations are made for the Cash Department. 10.3.1 Expansion of the Cash Counter The Cash Department at the Branch needs special attention in the sense that the cash counter is small and becomes crowded when there are more than five to six customers to attend. Customers purchase drafts and other instruments from the very same counter where utility bills are collected and cash is deposited and withdrawn. Hence, if a new counter cannot be built due to certain limitations the utility bills should be collected through a window so that the regular customers do not face any problems. 10.3.2 Extended timings for Cash In order for the bank to progress and compete with the others in the market, it should extend the time for accepting and withdrawing cash. The customers face great hardship especially when they come from far off places and find that the cash counter is closed for the daily transactions.

10.4 Bills and Clearing Department

The following suggestions are made for this Department keeping in view the problems noted in it. 10.4.1 Career Development It has been noted that the officers taking bills for clearing do not involve themselves much with the other operations of the bank and thus remain on the very same post and seat throughout their banking career. This is

against the modern day policies of organizations giving their employees conducive, rewarding and equal opportunities of prospering and growing with it. Thus, the Human Resource Department at the Head Office should prepare a plan that shows the future growth potential of the employees based on their job performance and evaluation and make it known to all. 10.4.2 Job Rotation There should be job rotation of employees especially in this department as it was felt that the employees here know quite less as compared to the others. This will enhance their capabilities and help them break the monotony making them find their work more interesting. 10.4.3 Personality Nourishment The clearing officer has less to do with the operations of the bank and thus does not sit at a front desk of the branch. As a result, he becomes usually casual and relaxed about his apparel. This leaves a bad impression of the bank when he leaves the premises. A dress code should be implemented and observed by all the employees in order to build a reputation of the bank.

10.5 Advances Department

There were certain drawbacks in the application and processing for the loan requests that were observed at the branch. The findings and the recommendations are as under 10.5.1 Proper Documentation

If valid documents are not obtained before sanctioning the loan limit, it becomes irrecoverable in case of default by the borrower. It has been noted that at times the related officers oblige the customer by letting him submit the documents later and approving the limit by getting the Disbursement Authorization Certificate from the Credit Committee. It proves to be very time and resource consuming afterwards tracing the borrower to bring in the documents. Therefore, correct and complete documents should be attained before the amount is sanctioned and no leniency shown in any case. 10.5.2 Computerized Record All the sanctioned cases should have record on the computer as it is easy to access and does not involve the hassles of maintaining and retrieving large and old files. For this purpose, training programs should be organized for the Relationship Managers to enable them to have a basic computer know how. Through this, they would also be able to assess the financial position of the prospective borrower in minutes by using related financial software. 10.5.3 Verification of Security Physical verification of the security tendered is a must rather than to merely rely on the documents. It had been noted that where the property to be hypothecated/ mortgaged lay in remote areas such as the Gadoon Industrial Estate regular physical visits are avoided by the officers. This and the above factors result in an increase in the non-performing loans of the bank and as result UBL had more debts turned bad as compared to the other banks. For this purpose, regular physical verification must be conducted of securities pledged and hypothecated.

10.6 Foreign Exchange Department

There various shortcomings that were noted in this Department and hence the following recommendations 10.6.1 Centralization of the Department All foreign trade related transactions are routed to the Foreign Exchange Department in Islamabad, which causes unnecessary delay to the customer. In case of haste or pressure from the importer/ exporter or some other reason the documents sent to the Forex Department are not complete or correct the case is sent back to the Cantt. Branch and it takes yet longer to process it. The Forex Department should be decentralized and at least the Hub i.e. Peshawar Cantt. Branch given the authority to open L/Cs and handle other related operations. This is because NWFP has many industries that are involved in buying and selling things abroad.

10.7 Other Findings and Recommendations

The following recommendations are for the bank as a whole 10.7.1 Establishment of Marketing Department at the Hub Branch Nowadays no organization can survive in this tough competitive world without having able to market itself and its products. Keeping this in mind a Marketing Department should be introduced in all the Hub branches that would easily implement the marketing policies of the Head Office. This would help in increasing the market share in deposits and advances for UBL above the current 17 and 18 percents. 10.7.2 Development of Managerial Leadership

Good managerial skills make positive contribution towards higher effective results. UBL should focus on the effective utilization of its human resource by applying the modern style of management. This can only be possible if political interferences are discouraged especially when hiring and placing personnel and the recruitment policies are changed to give preference to M.B.A. and M. Com. students. 10.7.3 Tests for Promotions A sizeable portion of the officers at UBL is promoted without conducting any tests and interviews. This results in undeserving people sitting on the managerial posts and steering the organization away from its goals and objectives in the long run. 10.7.4 Training for Credit Management Special trainings on credit management should be imparted to the staff dealing in financing activities of the bank. This is very important in light of current loan default scenario in the economy. 10.7.5 Delegation of Powers Delegating powers to the Department in-charges upto the greater possible extent will most certainly reduce the workload on the managers and they would be able to perform well by taking quick remedial actions where necessary. Besides, the spare time will be spent dealing with matters of more important nature. 10.7.7 Research and Development Department

A Research and Development Department in UBL will help it to adopt new procedures and modern techniques that will help the bank to compete with the others. An R&DD should be maintained at all the Hub Branches that would define the target market for the bank in that particular area and through its findings suggest measures to improve the performance of branches there.